By Amy Heaslet, Executive Vice President/General Counsel, Tennessee Bankers Association
With the second session of the 113th General Assembly now in the rearview mirror, I want to thank our members for their strong engagement. This was a challenging session and we faced many difficult issues.
Towards the end of session, a proposed bill looked to amend UCC Article 8 to address a problem that out-of-state groups believe exists within the securities industry but, in fact, does not. Their perception was that state UCC laws provide that when trading securities electronically, the person who owns the securities is not the true owner and ownership rests in the hands of the broker dealer. Therefore, they claimed that if the broker dealer becomes insolvent, creditors would have priority over the securities.
For those unfamiliar with the nuances of Article 8, rest assured you are not alone. Members of the committees who heard the bills were as equally unfamiliar as we were initially. But after what felt like a crash course in Article 8 and studying for a last-minute law school exam, we were able to convince legislators that the proponents’ interpretation of the existing law was incorrect. But to get to that point, it took hours of consultation with experts, testimony from a Vanderbilt professor, and, perhaps, most importantly, legislators putting their trust in us rather than the out-of-state groups.
Had the legislation passed, the effect on the securities industry would have been systematically catastrophic to market operations and trading electronically could have been halted in Tennessee. For us, defeating this was perhaps our biggest win of the session.
We were not as successful, however, with anti-ESG legislation that represents a significant shift in legislators’ position on banking legislation by putting politics over policy.
That legislation, which will bring forced access to all areas of banking except lending for banks over $100 billion in assets, boiled down to one thing—legislators believed they politically could not afford to vote against it because of upcoming elections. Although the legislation creates forced access to banking services, it was presented by bill sponsors as an anti-ESG measure that pushes back against the largest financial institutions for allegedly closing customers’ accounts because of their religious views.
Legislators’ solution to this perceived problem was to set new parameters of what covered institutions must consider— or not consider—when determining who to do business with and when to close certain accounts. Specifically, the legislation provides that covered institutions may not consider a person’s religious, social, or political opinions or statements, or use a social credit score based on numerous factors, including the use of DE&I policies and ESG scores.
We strongly opposed the bill on the grounds that it interferes with free market principles and allows the state to dictate who banks must do business with. Not to mention that banks are already prohibited from discriminating on religious grounds. Although it applies only to our largest members, whom we worked closely with throughout the bill’s legislative process, community bankers across the state also advocated against it. The banking industry knows all too well that policies that apply only to banks of a certain size usually end up being applied to banks of all sizes.
Despite our opposition, the legislation passed both chambers along party line votes. Although I believe some, probably several, Republicans did not fully agree with the policies behind the bill, voting against it was something they were not willing to do because their constituents feel strongly about ESG. But I bet that if you asked those constituents to explain what ESG is, they would not be able to. As one legislator put it, ESG is the boogeyman everyone is scared of, yet they don’t know what it is.
I have no doubt we did everything we could to stop this legislation, but legislators were too focused on the politics behind this rather than the policy. We’ve always been successful lobbying issues because of the affect it could have on the banking industry, but this legislation, and this session generally, was weighted too heavily on the political optics of certain issues.
My hope is that this is an exception and does not become the norm within the General Assembly. Our focus at TBA has been, and always will be, protecting the banking industry from unnecessary law and regulation to allow banks to serve their customers and communities.
That is why it matters who governs. With the elections right around the corner, we will support legislators who are pro-banking and support a free market. To do that, we need your input on elections in your districts. Please keep us informed of candidates we should support.
