A battle has broken out in Kansas over a state senator's proposal to eliminate the banking commissioner's "wild card" authority.
Like 43 other states, Kansas allows its banking commissioner to grant state-chartered banks the same powers as nationally chartered banks.
But state Sen. Don Steffes has introduced a bill to withdraw that authority. The impetus: a commissioner's order in 1995 that allowed state banks to form subsidiaries to invest in tax-exempt government securities.
Sen. Steffes argues that the move has cost the Kansas treasury millions in tax revenue. "These subsidiaries are a license not to pay taxes," he said in an interview. "This never would have happened without" the banking commissioner's order.
The state Department of Revenue expected $38 million of tax revenue from state and national banks in 1997, Sen. Steffes said. But more than 120 banks-including 80 state-chartered institutions-have formed investment subsidiaries, shaving the state's actual take by $13 million.
"For a state of our size"-Kansas' yearly budget is about $3 billion- "this is a significant hit," said Sen. Steffes, a Republican and former community bank president. "I'm simply trying to find a way to make up for lost revenues."
The legislation has outraged state Banking Commissioner W. Newton Male. If it were to pass, he cautioned, "every state bank in Kansas would switch to a national charter. Then the Legislature would have no control over banks in this state."
"Talk about shooting a mosquito with a cannon," said Ellen C. Lamb, spokeswoman at the Conference of State Bank Supervisors. Ms. Lamb added that no other state is considering repeal of wild-card authority. In fact, she said, the trend is for more states to enact it, New York being the most recent example.
The banking commissioner's 1995 order allowed state banks to take advantage of the exemption from state taxes for income generated by subsidiaries that invest in government securities. (National banks had been able to claim this exemption for similar subsidiaries since 1981.)
Under a separate bill also sponsored by Sen. Steffes, any bank in Kansas that invested in federal securities through a separate company would have to file a consolidated tax return. Doing so, he argued, would force banks- both state and national-to report interest earned on those securities as income.
Mr. Male said he has no problem with that proposal-as long as it is applied to both state and national banks. But at a state Senate hearing in Topeka recently, James S. Maag, executive vice president of the Kansas Bankers Association, questioned the constitutionality of Mr. Steffes' efforts.
He also told the Senate committee that, even with the subsidiaries, the ratio of state to federal income taxes paid by Kansas banks "ranges from two to seven times higher" than in neighboring states.
Acknowledging that his bill to repeal the banking commissioner's wild- card power is a long shot, Sen. Steffes said his real goal is to make the banking commisioner's office more accountable by forcing it to brief lawmakers on the fiscal impact of its actions.
It is not solely the loss of tax revenue that concerned Sen. Steffes. He said banks that invest deposits in tax-exempt government securities may lend less to small businesses, a move that could stymie business development.
But Mr. Male, who is also chairman of Prairie State Bank in Augusta, noted that loan-to-deposit ratios have increased at Kansas banks in the last three years. Lending is still more profitable than government securities, he noted.
"What reasonable banker would put a bunch of money into a U.S. Treasury security that would yield about 5.5% when he or she could get 8.5% to 10% interest on a loan?" he asked.
