The Florida Senate
BILL ANALYSIS AND FISCAL IMPACT STATEMENT
(This document is based on the provisions contained in the legislation as of the latest date listed below.)
Prepared By: The Professional Staff of the Committee on Banking and Insurance
BILL: SB 542
INTRODUCER: Senator Ingoglia
SUBJECT: Boards of Directors of Banks
DATE: January 8, 2024
ANALYST STAFF DIRECTOR REFERENCE ACTION
1. Moody Knudson BI Favorable
2. CM
3. RC
I. Summary:
Senate Bill 542 provides that a person who previously served on a board of directors of a bank
conducting business in Florida that became insolvent is disqualified from serving as a board of
director of another bank for 5 years after the date such bank became insolvent.
The bill is effective July 1, 2024.
II. Present Situation:
A bank fails when it must be closed, which generally happens when a bank becomes insolvent
because it is unable to meet its monetary obligations.
1
The Federal Deposit Insurance
Corporation (FDIC) reports that there have been 566 bank failures from 2001 through 2023,
2
five
of which were in 2023.
3
Dual Oversight of Depository Institutions
An institution must have a federal or state charter to accept deposits. Banks are chartered and
regulated as national banks by the Office of the Comptroller of the Currency within the U.S.
Department of the Treasury or as state banks by a state regulator.
4
1
The FDIC, When a Bank Fails – Facts for Depositors, Creditors, and Borrowers, July 28, 2014, available at: FDIC: When a
Bank Fails - Facts for Depositors, Creditors, and Borrowers (last visited Jan. 3, 2024) (hereinafter cited as “FDIC: When a
Bank Fails – Facts for Depositors, Creditors, and Borrowers).
2
The FDIC, Bank Failures in Brief – Summary 2001 through 2023, Nov. 3, 2023, available at: FDIC: Bank Failures in Brief
(last visited Jan. 3, 2024).
3
The five banks are: (a) Citizens Bank on November 3, 2023, (b) Heartland Tri-State Bank on July 28, 2023, (c) First
Republic Bank on May 1, 2023, (d) Signature Bank on March 12, 2023, and (e) Silicon Valley Bank on March 10, 2023. The
FDIC, Failed Bank List, Oct. 1, 2000, available at: FDIC: Failed Bank List (last visited Jan. 3, 2024).
4
Congressional Research Service, Introduction to Financial Services: Banking, p. 1, Jan. 5, 2023, available at:
https://crsreports.congress.gov/product/pdf/IF/IF10035 (last visited Jan. 4, 2024).
REVISED: BILL: SB 542 Page 2
The Florida Financial Institutions Codes apply to all state-authorized or state-chartered financial
banks, trust companies, credit unions and related entities.
5
The Office of Financial Regulation
(OFR) licenses and regulates 200 financial entities, including 69 state-chartered banks as of
January 2023.
6
There are also 26 nationally-chartered banks and 3 federally-chartered savings
institutions operating in Florida as of September 2023.
7
Due to federal preemptions, a state’s regulatory powers in relation to federally chartered
institutions is limited. However, the state may exercise powers within their exceptions to
exclusive federal visitorial authority. Such exceptions are those recognized by federal law and
courts of law or created by the U.S. Congress.
8
Banks chartered by OFR must become members
of the Federal Reserve or obtain insurance from the Federal Deposit Insurance Corporation.
9
Thus, state-chartered banks are subject to a dual-regulatory system.
10
OFR must examine the condition of each state-chartered financial institution at least every 18
months, and may conduct more frequent examinations as needed, based on risks associated with
a licensee, such as prior examination results or significant operational changes.
11
When a state-
chartered financial institution also has a federal regulator, OFR may accept an examination
performed by the federal regulator
12
or the regulators may conduct a joint examination.
13
Laws Relating to Directors
Once a financial institution obtains a charter, one of the regulator’s primary tasks is to ensure
solvency, which is achieved by conducting financial exams of its licensed entities. Financial
institutions also need approval from their regulator to make changes in their upper management,
merge with another company, pay dividends to shareholders, engage in material transactions
with subsidiaries and affiliates, or make significant changes to their business operations.
14
5
Section 655.005(1)(k), F.S., states that the Financial Institutions Codes includes: Ch. 655, financial institutions generally;
Ch. 657, credit unions; Ch. 658, banks and trust companies; Ch. 660, trust business; Ch. 662, family trust companies; Ch.
663, international banking; Ch. 665, relating to associations; and Ch. 667, savings banks.
6
The OFR, Fast Facts (2023 ed.), available at: FastFacts.pdf (flofr.gov) (last visited Jan. 4, 2024).
7
The FDIC, FDIC State Tables, Aug. 31, 2022, available at: FDIC: State Tables (last visited Jan. 4, 2024).
8
12 C.F.R. § 7.4000 (2011).
9
Sections 658.22 and 658.38, F.S.
10
The OCC, Who Regulates My Bank?, available at: Who Regulates My Bank? (helpwithmybank.gov) (last visited Jan. 4,
2024).
11
Section 655.045(1), F.S.
12
FDIC may conduct examinations or take authorized investigatory steps to determine compliance with applicable law and
regulations. 12 U.S.C. § 1820.
13
Section 655.045(1)(a), F.S.
14
For a detailed discussion of the regulatory framework, see, Congressional Research Service, Who Regulates Whom? An
Overview of the U.S. Financial Regulatory Framework, March 10, 2020, available at:
https://crsreports.congress.gov/product/pdf/R/R44918/7 (last visited Jan. 4, 2024). Also see ss. 655.0385, 655.0386,
655.03855, and 655.412, F.S. BILL: SB 542 Page 3
Disapproval of Directors
Federal law
An insurance depository institution
15
or a depository institution holding company
16
must notify
the appropriate Federal banking agency
17
of the proposed addition of a board of director at least
30 days (or such other time as prescribed by the Federal banking agency) before such addition
if:
18
The entity is noncompliant with minimum capital requirements or is otherwise in a troubled
condition;
19
or
The agency determines, within its specified authority, that prior notice is appropriate.
The appropriate Federal banking agency must issue a notice of disapproval if the competence,
experience, character, or integrity of the individual indicates that it would not be in the best
interests of the depositors of the depository institution or the public to permit the individual to be
a director or be employed as a senior executive officer of the institution.
20
If the appropriate
Federal banking agency issues a notice of disapproval before the end of a specified notice period,
the entity may not add the individual to the board of directors.
21
Florida law
Similar to Federal law, Florida law also authorizes the OFR to disapprove the proposed
appointment of any individual to the board of directors if the state financial institution meets
specified criteria, including, but not limited to, when the institution is non-compliant with
minimum capital requirements or is otherwise operating in an unsafe and unsound condition.
22
15
“Insured depository institution” is defined as any bank or savings association the deposits of which are insured by the
FDIC pursuant to ch. 16. 12 U.S.C. § 1831(c)(2). Under Florida law, a state bank must obtain and thereafter maintain
insurance of its deposits by the FDIC. Section 658.38, F.S.
16
“Depository institution holding company” is defined as a bank holding company or a savings and loan holding company.
12 U.S.C. § 1831(w). “Bank holding company” means any company which has control over any bank or over any company
that is or becomes a bank holding company by virtue of ch. 17. 12 U.S.C. § 1841. “Savings and loan holding company” is
defined as any company that directly or indirectly controls a savings association or that controls any other company that is a
savings and loan holding company except as specified in 12 U.S.C. § 1467a(a)(1)(D)(ii). 12 U.S.C. § 1467a(a)(1)(D)(i).
17
“Appropriate Federal banking agency” is defined as: (1) the Office of the Comptroller of the Currency in the case of: (A)
any national banking association; (B) any Federal branch or agency of a foreign bank; and (C) any Federal savings
association; (2) the Federal Deposit Insurance Corporation, in the case of: (A) any State nonmember insured bank; (B) any
foreign bank having an insured branch; and (C) any State savings association; (3) the Board of Governors of the Federal
Reserve System, in the case of: (A) any State bank; (B) certain branch or agencies of a foreign bank; (C) any foreign bank
which does not operate an insured branch; (D) any agency or commercial lending company other than a Federal agency; (E)
supervisory or regulatory proceedings arising from the authority given to the Board of Governors under certain provisions;
(F) any bank holding company and any non-depository subsidiaries of a bank holding company; and (G) any savings and
loan holding company and any non-depository subsidiaries of a savings and loan holding company. 12 U.S.C. § 1813(q).
18
12 U.S.C. § 1831i(a).
19
“Troubled condition” must be defined by each appropriate Federal banking agency. 12 U.S.C. § 1831i(f).
20
12 U.S.C. § 1831i(e).
21
12 U.S.C. § 1831i(b).
22
“Unsafe and unsound practice” is defined as: 1. any practice or conduct found by the office to be contrary to generally
accepted standards applicable to a financial institution, or a violation of any prior agreement in writing or order of a state or
federal regulatory agency, which practice, conduct, or violation creates the likelihood of loss, insolvency, or dissipation of
assets or otherwise prejudices the interest of the financial institution or its depositors or members. Section 655.005(y), F.S. BILL: SB 542 Page 4
Removal and Prohibition Orders of Directors
Federal law
Pursuant to 12 U.S.C. 1818(e), an appropriate Federal banking agency may serve upon a director
(other than a bank holding company or savings and loan holding company)
23
a written notice of
the agency’s intention to remove such director from office or to prohibit any further participation
in the conduct of the affairs of any insured depository institution if certain criteria are met.
24
Specifically, the appropriate Federal banking agency may take such action if it has determined
that a director has:
25
Violated any law or regulation, any final cease-and-desist order, or certain conditions
imposed in writing by, or any written agreement entered into with, certain Federal banking
agencies;
Engaged in any unsafe or unsound practice, or any act, omission, or practice which
constitutions a breach of the director’s fiduciary duty;
By reason of the violation, practice, or breach:
o Such insured depository institution or business institution has suffered or will
probably suffer financial loss or other damage;
o The interests of the insured depository institution’s depositors have been or could be
prejudiced; or
o The director has received financial gain or other benefit by reason of such violation,
practice, or breach; and
Such violation, practice, or breach involves personal dishonesty by the director, or
demonstrates willful or continuing disregard by the director for the safety or soundness of
such insured depository institution or business.
The appropriate Federal banking agency may suspend the director from office or prohibit the
director from further participation in the affairs of the depository institution if the agency finds
that: (a) the director violated these provisions, and (b) that such action is necessary for the
protection of the institution or the interests of the institution’s depositors.
26
Any director who is suspended from office or prohibited from participating in the affairs of the
institution pursuant to this provision or pursuant to certain criminal offenses
27
may not, while
such order is in effect, continue or commence to hold any office in, or participate in any manner
in the conduct of the affairs of, any insured depository institution and other specified entities.
28
23
Federal law applies to “any institution-affiliated party” which is a broader category of persons than only directors and is
defined as: (1) any director, officer, employee, or controlling stockholder (other than a bank holding company or savings and
loan holding company) of, or agent for, an insured depository institution; (2) any other person who has filed or is required to
file a change-in-control notice with the appropriate Federal banking agency under s. 1817(j) of this title; (3) any shareholder
(other than a bank holding company or savings and loan holding company), consultant, joint venture partner, and any other
person as determined by the appropriate Federal banking agency (by regulation or case-by-case) who participates in the
conduct of the affairs of an insured depository institution; and (4) certain independent contractors. 12 U.S.C. § 1813(u).
24
12 U.S.C. § 1818(e). The appropriate Federal banking agency may also remove a director for specific violations of federal
law, such as intentionally violating provisions relating to records and reports on mandatory instruments transactions. 12
U.S.C. § 1818(e)(2).
25
12 U.S.C. § 1818(e)(1).
26
12 U.S.C. § 1818(e)(3)(i). The agency is also required to serve the director with written notice of the suspension order as
condition of its issuance. 12 U.S.C. § 1818(e)(3)(ii).
27
12 U.S.C. § 1818(g).
28
12 U.S.C. § 1818(e)(7)(A). BILL: SB 542 Page 5
A specified federal agency may consent to limit or cease enforcement of any order against a
director.
29
Pursuant to these provisions, the FDIC pursued enforcement actions against directors of First
NBC Bank which was bank in New Orleans that failed in April 2017.
30
In April 2023, the FDIC
issued orders of prohibition from further participation in specified activities, including serving or
acting as a director unless or until the order is modified, terminated, suspended, or set aside by
the FDIC and specified agencies.
31
Florida law
Similar to Federal laws, Section 655.037, F.S., authorizes the OFR to issue and serve a complaint
to remove a director
32
of a financial institution if the OFR has reason to believe that such party is
engaging or has engaged in any specified conduct, including, but not limited to, an unsafe or
unsound practice,
33
a prohibited act or practice, or a willful violation of any law relating to
financial institutions.
34
The complaint must contain a statement of facts and notice of opportunity
to be heard.
35
The OFR may enter an order removing the director or restricting or prohibiting
participation by the director in the affairs of that particular or any other state financial institution,
subsidiary, or service if: (a) the director does not request a hearing within the prescribed time, or
(b) a hearing is held and the OFR makes findings that:
36
Any of the charges in the complaint are true;
One of the following is met:
o The state financial institution has suffered or will likely suffer loss or other damage;
o The interests of the depositors, members, or shareholders could be seriously
prejudiced; or
o The director has received financial gain by reason of such violation, practice, or
breach; and
29
12 U.S.C. § 1818(e)(7)(B).
30
RegReport, Directors from Failed NOLA Bank Prohibited from Further Service or Fined – or Both, May 26, 2023,
available at: Directors from failed NOLA bank prohibited from further service or fined – or both – Regulatory Report
(regreport.info) (last visited Jan. 4, 2024).
31
The FDIC, ED&O Search Form, available at: FDIC: Enforcement Decisions and Orders - Search Form (last visited Jan. 4,
2024).
32
Florida law applies to any “financial institution-affiliated party” which is a broader category of persons than only directors
and is defined as: 1. a director, officer, employee, or controlling stockholder, other than a financial institution holding
company, of, or agent for, a financial institution, subsidiary, or service corporation; 2. Any other person who has filed or is
required to file a change-of-control notice with the appropriate state or federal regulatory agency; 3. A stockholder, other than
a financial institution holding company, a joint venture partner, or any other person as determined by the office who
participates in the affairs of a financial institution, subsidiary, or service corporation; or 4. certain independent contractors.
Section 655.005(j), F.S.
33
“Unsafe or unsound practice” is defined as: 1. any practice or conduct found by the office to be contrary to generally
accepted standards applicable to a financial institution, or a violation of any prior agreement in writing or order of a state or
federal regulatory agency, which practice, conduct, or violation creates the likelihood of loss, insolvency, or dissipation of
assets or otherwise prejudices the interest of the financial institution or its depositors or members. Section 655.005(y), F.S.
34
Section 655.037(1), F.S.
35
Section 655.037(2), F.S. The OFR’s jurisdiction and authority to issue any notice and proceed with a complaint is not
affected by resignation, termination of employment or participation, or separation from a state financial institution by the
director if such notice is served before the end of the 6-year period beginning on the date such person ceases to be such a
director with respect to the state financial institution. Section 655.037(8), F.S.
36
Section 655.037(3), F.S. BILL: SB 542 Page 6
Such violation, practice, or breach of fiduciary duty is one involving personal dishonesty by
the director, or a continued disregard for the safety or soundness of the state financial
institution.
Under Florida law, any director removed from office pursuant to s. 655.037, F.S., is not eligible
for reelection to such position or to any official position in any financial institution in Florida
except with the written consent of the OFR.
37
III. Effect of Proposed Changes:
Section 1 of the bill creates s. 655.038, F.S., which disqualifies a person who has previously
served on a board of directors of a bank conducting business in Florida that became insolvent
from serving as a board of director of another bank for 5 years after the date such bank became
insolvent. The bill ensures such directors are disqualified as a matter of law. Currently, OFR may
exercise discretion to prohibit or remove a director from serving in a state-chartered bank, but the
agency must prove that the director has engaged in unsafe or unsound practices, violated
specified laws or OFR rules, or committed a breach of trust or breach of fiduciary duty.
Section 2 of the bill provides for an effective date of July 1, 2024.
IV. Constitutional Issues:
A. Municipality/County Mandates Restrictions:
None.
B. Public Records/Open Meetings Issues:
None.
C. Trust Funds Restrictions:
None.
D. State Tax or Fee Increases:
None.
E. Other Constitutional Issues:
None.
V. Fiscal Impact Statement:
A. Tax/Fee Issues:
None.
37
Section 655.037(7), F.S. BILL: SB 542 Page 7
B. Private Sector Impact:
State-chartered banks and their customers may benefit from not having directors that held
the same position in a bank doing business in Florida that went insolvent within the
previous 5 years.
A state-chartered bank may incur replacement costs to the extent that any current
directors are disqualified under the provisions of the bill. Directors who, but for the
provisions of SB 542, would serve as a director of a state-chartered bank may have lost
compensation.
C. Government Sector Impact:
None.
VI. Technical Deficiencies:
None.
VII. Related Issues:
None.
VIII. Statutes Affected:
This bill creates section 658.33 of the Florida Statutes.
IX. Additional Information:
A. Committee Substitute – Statement of Changes:
(Summarizing differences between the Committee Substitute and the prior version of the bill.)
None.
B. Amendments:
None.
This Senate Bill Analysis does not reflect the intent or official position of the bill’s introducer or the Florida Senate.