PIERRE – A legislative committee gave its endorsement Wednesday to expanding the method for calculating a state-chartered bank’s loan or credit limit in South Dakota.

The goal is to cover the more-exotic transactions conducted by many banks throughout the world in the past decade. The federal government wants states to adopt the change.

The House State Affairs Committee voted 12-0 in favor. The full House of Representatives could take up HB 1053 as early as this afternoon (Thursday).

The legislation would broaden the definition of loan in state law.

It would add “any credit exposure to a borrower that arises from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction between a bank and that borrower.”

Bret Afdahl, director for the state Division of Banking, told the House committee that it “was buried in the (federal) Dodd-Frank act” as part of banking regulatory reform by Congress.

He said the goal was greater transparency in the wake of the banking problems during the recent recession.

“At that time it was an opaque market. Nobody really knew how many of these things were out there and the dollar signs attached,” he said.

Some banks in South Dakota engage in simple versions of some of the practices, according Afdahl. “They’re doing it to mitigate their risk, not speculate,” he said.

State regulators will issue additional rules to the banks if the legislation becomes law.

Speaking in support of the change was Curt Everson, president of the South Dakota Bankers Association. He said the Legislature adjourned in 2012 before South Dakota banks knew it needed to be addressed.

Approximately 20 states dealt with the issue last year, and South Dakota is one of three states with legislation pending this year, according to Everson. He said the U.S. comptroller of the currency has already issued rules for national bank.

Everson explained that state-chartered banks in South Dakota dealing in interest-rate swaps are hedging as opposed to speculating.

No opponents testified. Committee members didn’t ask any questions.

Rep. Brian Gosch, R-Rapid City, said the change would better protect South Dakotans.

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