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Industry Letters

Clarification of Part 14 Notifications and Filings


June 16, 2003

To the Chief Executive Officer of the Institution Addressed: 

The purpose of this letter is to clarify the New York State Banking Department’s position with respect to notifications and filings required pursuant to Part 14 of the General Regulations of the Banking Board – “Investments in Corporations by Banks and Trust Companies.”  

Part 14 implements Sections 97(4-a) and 97(5) of the Banking law, which relate to direct and indirect investments by New York banks and trust companies in subsidiary corporations, or in such other investments as may be approved by the Banking Board, respectively.  Part 14.3 details the procedures for notice of an investment in an operating subsidiary, while Part 14.4 details investment procedures for other stock investments.  Both Parts 14.3 and 14.4 request certain basic information about the investment, such as, but not limited to, the amount of the investment, the activities or proposed activities of the corporation, the organizational and management structure of the corporation, and the relations between the bank or trust company and the corporations (such as whether the bank or trust company intends to lend money to or guarantee the obligations of the corporation). 

Although Part 14 by its terms technically only applies to investments in corporations, in light of the common use of other investment vehicles such as limited liability companies, trusts and partnerships, the Department’s policy is to require a notice detailing a bank’s or trust company’s investments in such other investment vehicles as well. 

Under certain circumstances, Part 14.3 (c) provides that investments in specifically listed activities qualify for after-the-fact notice. As a prudential measure, for investments where the nature of the activity may be uncertain, the Department recommends that institutions file their Part 14 notices a reasonable period in advance of the proposed investment to allow the Department sufficient time to consider any issue(s) that might be raised. 

Part 14 submissions should be signed by the institution’s General Counsel.  The notice should contain a discussion of the legal authority under applicable banking laws for the institution to engage in the proposed activity and, if applicable, the basis on which the proposed investment qualifies for after-the-fact notice.  In addition, the institution should be prepared, particularly for unusual or complex transactions, to have appropriate representatives, including the responsible businesspersons, meet with Department staff to discuss the proposed transaction. 

The notice always should provide a full description of the intended transaction, including, but not limited to, a description of all parties involved, legal structures employed (such as special purpose vehicles or trusts), business rationale for the transaction, proposed accounting treatment, tax consequences, cash flows, and analysis of the credit, market, legal and reputational risks associated with the proposed transaction. 

Where appropriate, the notice should also address and/or include documentation relating to, without limitation, the following: 

  • For an activity that has been engaged in previously, a discussion of whether the investment related thereto, the legal structures, or other significant aspects of the activity have changed since the original notice.
  • The institution’s motivation and, if appropriate, the other transaction participants’ motivations and business purposes for engaging in the transaction.
  • Effects of the transaction on the income statement, balance sheet and cash flow statement for each entity involved.
  • Illustration and explanation of accounting by each entity involved.
  • Explanation of valuations, if appropriate.
  • Submission of legal, accounting and tax opinions, where applicable.
  • Discussion of significant issues raised by or subject to the jurisdiction of other regulatory authorities, whether U. S. or foreign.
  • Discussion of the institution’s consideration of legal and reputational risks and/or exit strategies relating to the transaction.

Finally, it is the Department’s expectation that, in the event that there is a regulatory deficiency in connection with the Part 14 notice (e.g., the notice is submitted late or not at all until requested by the Department), the institution will disclose this deficiency to the Department in its Part 14 filing, along with an explanation of how it occurred and any changes the institution may have instituted in its policies, procedures or personnel to prevent repetition of such deficiency in the future. 

Adherence to this guidance on Part 14 submissions will contribute towards a thorough and timely review by the Department of an institution’s future Part 14 notices. 

Should you have any questions or comments concerning the foregoing, please feel free to contact the Department’s Legal division at (212) 709-1655. 

Very truly yours, 

Diana Taylor
Superintendent of Banks

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