Derivative transactions authorized

Derivative transactions will be allowed at state charter banks and holiday closures for financial institutions have been clarified.

Each is part of a new law signed March 30 by Gov. Mark Dayton.

Derivative transactions involve investments that have no value in themselves, but derive value from other investments. Derivatives may be based in a variety of assets, such as mortgage loans. Financial institutions could bundle 1,000 of those loans together and sell shares to investors.

Proponents said banning derivative transactions would put state charter banks at a disadvantage to other banks, which may make these transactions. Opponents expressed concern that derivatives pose a potential danger to Minnesotans, who may make investments that are actually worth much less than they seem, as was the case leading up to the recession.

The new law also allows banks to close on Mondays following Sunday holidays. Banks may also close on Saturdays if the preceding Friday or following Sunday or Monday is a holiday.

Rep. Diane Anderson (R-Eagan) and Sen. Dan Sparks (DFL-Austin) sponsor the law. Clarification of bank operating hours is effective March 31, 2012, while the provision addressing derivative transactions takes effect Jan. 21, 2013.

HF2227/ SF1735*/CH142