Banking Department Permits State-chartered Banks to Provide Enhanced Temporary Funding Arrangements for Emergencies
New York State Banking Superintendent Neiman Takes Action to Address Current Financial Market Conditions and Maintain Parity for New York Banks with Federally Chartered Banks
September 26, 2008
New York, NY: The New York State Banking Department today announced that, in light of the current extraordinary conditions in the financial markets, including the difficulty of obtaining credit in normal amounts and on normal terms, the Banking Board has adopted a resolution under its “Wild Card Authority” to address current liquidity conditions. The Banking Board resolution authorizes New York State-chartered banks, with the approval of the Superintendent of Banks, to enter into loans in emergency situations and for limited periods of time that exceed regular lending limits. National banks have comparable authority.
Superintendent of Banks, Richard H. Neiman, said “These are serious times and we have a responsibility to be responsive to changing market conditions and to ensure that we have the ability to enable New York State-chartered banks to help ease the credit and liquidity crunch that the financial markets are experiencing.”
The new resolutions address special lending limits for temporary funding arrangements in emergency situations. Recent market conditions have highlighted that situations may exist where temporary exemptions from the lending limits are appropriate in a broader range of circumstances and to a broader range of borrowers than addressed by existing exemptions in New York law.
Financial market conditions and events arising out of the subprime mortgage crisis over the past year, and over the last few weeks in particular, have led to a severe credit squeeze, making it difficult for financial and other firms to obtain necessary financing to continue operations. Several large financial firms, as well as several banks, have succumbed to the liquidity crisis.
These events have led to extraordinary measures by the Federal Reserve and other regulatory agencies, including the loosening of rules by the Federal Reserve Board that restrict transactions between banking institutions and their affiliates. The OCC in March 2008 adopted a rule which permits temporary exemptions for national banks from the lending limits to permit temporary funding arrangements in emergency situations. The resolution approved by the New York State Banking Board incorporates standards identical to the OCC.
Specifically, the Banking Board adopted two resolutions:
- The first, pursuant to Section 12-a(4) of the Banking Law, authorizes the Superintendent to permit state-chartered banks and trust companies to make loans and extensions of credit to one borrower in addition to those permitted by the normal legal loan limits if the Superintendent determines that such loans and extensions of credit are essential to address an emergency situation, such as critical financial markets instability, will be of short duration, will be reduced in amount in a timeframe and manner acceptable to the Superintendent, and do not present unacceptable risk. In granting such approvals, the Superintendent is to impose supervisory oversight and reporting measures that he determines are appropriate to monitor compliance. These standards and conditions are substantially similar to those imposed by the OCC on the temporary funding authority for national banks.
- The second, pursuant to Section 14(1)(p) of the Banking Law, authorizes a variation from the normal requirement that “Wild Card” resolutions be posted in the Banking Department’s Weekly Bulletin for at least 30 days before the Banking Board acts on them.
The full resolutions approved by the Banking Board are available on the Banking Department’s Web site at www.dfs.ny.us.legal/wildcard_bankinglegal/wildcard.htm. The resolutions will be published in the Weekly Bulletin as soon as possible and public comments will be received for 30 days thereafter.
Section 12-a of the New York State Banking Law provides “Wild Card” authorization, giving New York State-chartered banking organizations, as well as licensed foreign bank branches and agencies, enhanced access to powers possessed by counterpart federally-chartered banking institutions. Under the enhanced law, “Wild Card” authorization can be adopted by resolution of the Banking Board. Such “Wild Card” authorizations may include any right, power, privilege, benefit, activity, loan, investment or transaction that a federally-chartered banking institution, directly or through a subsidiary or subsidiaries, may lawfully exercise or engage in.
The New York State Banking Department is the regulator for all state-chartered banking institutions, virtually all of the United States offices of international banking institutions, all of the State’s mortgage brokers, mortgage bankers, check cashers, money transmitters and budget planners. The aggregate assets of the depository institutions supervised by the Banking Department are more than $2.2 trillion.
In addition to regulating banking institutions, the Banking Department is active in informing and educating all New Yorkers on banking matters. To contact the Banking Department, please call 1-877-BANK-NYS or visit our Web site at www.banking.state.ny.us.