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Bank Directors Appointed By Politicians - What Could Possibly Go Wrong?

I recently wrote about proposed legislation (SB 528) that would establish the California Infrastructure and Economic Development Bank (I-Bank) as a depository institution.  The I-Bank, despite its name, does not currently accept deposits.  The bill would authorize the state, local agencies, as defined, and quasi-public nonprofit entities to establish deposit accounts with the I-Bank. 

The bill provides that the I-Bank will be governed by a five-member board of directors.  These directors will not be elected by shareholders.  Rather, they will be appointed by the Infrastructure and Economic Development Bank Commission.  This Commission will be consist of the Governor, the Treasurer, the Attorney General, and the immediately preceding Governor.  I-Bank directors will be unpaid (except for expense reimbursement and $100 for each "full day" of board meetings) and will be subject to Senate confirmation.  Because they will serve at the pleasure of the Commission, they will enjoy even less independence than a director of a private corporation.  A bank with a Board appointed, and subject to removal, by elected politicians, what could possibly go wrong?

When I initially wrote about the bill (March 14, 2019), the text of the proposed legislation was not available on the California's official Legislative Information website.  Nonetheless, the bill history mysteriously states that bill was in print on February 22, 2019. This is significant because under Joint Legislative Rule 55 a bill, other than the Budget Bill, may not be heard or acted upon by committee or either house until the bill has been in print for 30 days.  

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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