Senate Standing Committee on Banking and Financial Institutions

The Senate Committee on Banking and Financial Institutions will come to order. We have two bills on today's agenda. It definitely appears like we don't have a quorum, so we will begin as a subcommittee. And therefore, we have one item on consent calendar and one item to be heard. Being no quorum is established, we will move on to the item to be heard, which is item number two that happens to be my bill.

So, I will turn the gavel over to Vice Chair. Very capable Vice Chair Niello.

I'm in charge now. You may proceed when ready.

Thank you. Good afternoon, Mr. chair and future members coming. I present for your consideration SB 972, a bill that modernizes our licensing law that covers non-bank lenders. The California Financing Law, also known as CFL, has a long history in statute and works well for traditional lending markets. But over the past two decades, we have seen incredible growth in large commercial loan financing that has developed outside of the traditional banking system.

This form of financing primarily serves middle market firms with an annual, with annual revenues of $10,000,000 to more than $1,000,000,000. These companies account for one third of private sector employment and GDP. They are an incredibly important segment of our economy. To serve the capital needs of these firms, investment funds and business development companies have originated more than 1 trillion of loans to these companies in recent years. Now, unlike states, unlike other states, California law requires these financing entities to obtain a lending license despite both the lender and borrower being highly sophisticated parties.

Now, while obtaining a license is achievable, the process can take over a year or a year or even more, which can effectively prohibit some investment funds from serving California borrowers. This bill establishes a new streamlined process that allows a regulated investment manager to obtain an umbrella license that covers all the funds that the manager advises. So, when an investment manager starts a new fund or brings an existing fund under its management, the CFL license is already in place, and the fund can immediately engage in lawful commercial lending activities. I would like to thank the sponsors for working with us over the past few years in landing on this specific approach. We have arrived at a solution that encourages mutually beneficial lending activity in California while preserving the ability for DFPI to oversee the market and to pay for the and to pay for the cost of that oversight.

I will now turn it over to bill sponsor, LSTA, who can provide testimony and answer any questions the committee may have, through the Chair.

Thank you.

Thank you, Senator Grayson. Chair Grayson, Vice Chair Niello, and members of the committee, good afternoon. I represent LSTA, the leading financial trade association representing the interests of the US corporate loan markets. Among our 600 plus members are approximately 250 asset managers who collectively extend hundreds of billions of dollars of loans to U. S. companies, including companies based in California.

The current California licensing framework, administered by the FBI, presents practical challenges for these lenders. Asset managers operating through multiple affiliated lending vehicles must complete duplicative licensing processes for each of its affiliated lending vehicles. This has led to very significant delays, up to as much as eighteen months and as a direct result, in many cases, loans are not offered to worthy California companies.

SB 972 would help address these challenges by creating a new category of license for SCC registered investment advisors, allowing them to obtain a single license at the SCC registered advisor level, which also covers advise—their advise lending vehicles, with the fee paid for the advisor in each covered vehicle. Importantly, there would be no reduction in oversight since managers would continue to be subject to the exact same scrutiny of DSPI. Consequently, the administrative burden for both asset managers and the DFPI would be lightened, while the amount of fees payable to DFPI would actually increase.

By enabling institutional funds to participate more readily in California's commercial lending markets, SB 972 would substantially increase the amount of loan capital, of capital available to support California's middle market and large businesses, promote job creation, and strengthen regional economic growth. On behalf of our LSTA members, I urge the members of the committee to support this critical bill.

We'd also like to thank Senator Grayson and his staff for their leadership on this issue. Thank you.

And that is your only primary witness?

Yes.

So, are the—is there anybody else in the audience in favor of this bill to testify, or me too? Seeing no one come forward. Are there—there is no registered opposition, but is there anyone here who wishes to speak in opposition to the bill? Seeing no one come forward. We'll bring it back to the committee. For anybody within the reach of my voice that is a member of the banking and finance committee meeting, please get yourself here post haste.

We're one member shy of a quorum. And this is the only bill that we are presenting today. So, it'd be appreciated to come down here now. And do we have any questions or there we go. We got a quorum now. So, let's, while we have the opportunity, let's establish the quorum.

[Roll Call]

Okay. We have a quorum. Questions or comments from the committee? Appears that there...

Move the bill.

Well, we have a motion on the bill. Appears there are no comments. Senator Grayson, you may close.

Respectfully ask for an aye vote.

Okay. So, let's call the roll.

[Roll Call]

That's, four or nothing. We will keep, that open for, other members that, hopefully will speedily come down here. But I will, now turn it back over to chair Grayson.

Thank you, vice chair. Thank you, vice chair Nilo. We will now go to the consent calendar so that members that are present can vote and move on to other business. We have a motion, for the consent calendar by Senator Strickland. Secretary, please call roll.

[Roll Call]

Consent Howard, calendar has four votes. We will keep the roll open for other members that may come in. We will hold the roll, for right now, and definitely until we get some members to come in. Thank you very much. Thank you. The Senate committee on banking and financial institutions will take a recess.

How long do we wait?

And we will wait until other members show up. Thank you. Financial institutions will reconvene. We are coming back to order and we have some members with this. Assistant, please call roll on the consent calendar.

[Roll Call]

The consent calendar has six and it is adopted. It is out. Moving on to item number two, s b 972. Assistant, please call roll.

[Roll Call]

Thank you. And that is six votes, and that bill is out of committee. Thank you very much to members for showing up and voting. That concludes our business for the day and banking committee is now adjourned.