Under current law, two or more banks may organize a corporation to perform
bank services (bank service corporation) by investing not more than 10 percent of
each bank's capital in the bank service corporation and holding the capital stock of
the bank service corporation. A bank service corporation may perform bank services
for banks, but may not engage in any other activity. "Bank services" are defined to
mean check and deposit sorting and posting; computation and posting of interest and
other credits and charges; preparation and mailing of checks, statements, notices,
and similar items; or any other clerical, bookkeeping, accounting, statistical, or other
similar functions performed for a bank. In addition to using a bank service
corporation, a bank may contract to have performed for the bank any bank service
if both the bank and the contractor assure the Division of Banking (division) in the
Department of Financial Institutions (DFI) that the performance of the service will
be subject to regulation and examination by the division to the same extent as if the
service were performed by the bank.

Also under current law, a bank that has not organized a bank service
corporation (nonparticipant bank) and that is competitive with banks that have
organized a bank service corporation may obtain bank services from the bank service
corporation by, at the nonparticipant bank's option, either: 1) acquiring an

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ownership interest in the bank service corporation, or 2) obtaining the bank service
at a rate no higher than necessary to fairly reflect the cost of the service, including
the cost of capital contributions of the bank service corporation owners. However,
the bank service corporation may deny a bank service to the nonparticipant bank if
the bank service is available from another source at a competitive cost or if providing
the bank service to the nonparticipant bank would be beyond the practical capacity
of the bank service corporation.

This bill expands the definition of "bank services" to specifically include
auditing, compliance, loan documentation, administrative, and technology functions
performed for a bank, as well as any other service established by the division. The
bill allows the division to establish additional services as "bank services" if the
services are related to the routine daily operations of banks. The division is not
required to engage in rule-making to establish additional services as "bank
services." If a bank files a written request with the division to establish additional
services as "bank services," the division must approve or disapprove the request
within 60 days after receiving the request.

The bill also repeals the requirement that a bank service corporation provide
bank services to nonparticipant banks.

Current law allows credit unions to invest in credit union service organizations
(CUSOs), which may provide specified services related to the routine daily
operations of credit unions. The Office of Credit Unions (OCU) in DFI may expand
this list of permissible services provided by CUSOs. This bill specifies that OCU is
not required to engage in rule-making to expand this list of permissible services.