June 26, 2000
Re: Interaction of New York and Indiana Laws
Dear Mr. [ ]:
Your letter of June 6, 2000 addressed to First Assistant Counsel [ ] has been referred to me for reply. You have inquired as to the applicable laws and regulations which would govern an Indiana State-chartered financial institution ("Bank") establishing a so-called "limited purpose trust company" in New York from which it would exercise fiduciary powers. (For purposes of this discussion we are assuming Bank is a state-nonmember uninsured institution which limits its deposit taking to receiving trust funds.) Under the laws of Indiana, a New York State-chartered bank may establish an office to conduct business as a fiduciary in Indiana if the New York law would allow an Indiana bank with trust powers to establish a place of business in New York for the conduct of business as a fiduciary.
Section 131(4) of the New York Banking Law ("Banking Law") provides "Except as otherwise provided in Article 5 or Article 5-C of this chapter, no foreign corporation, having authority to act in this state as trustee or in any other fiduciary capacity shall establish or maintain, directly or indirectly, any branch office or agency in this state." Article 5-C, Section 223 of the Banking Law, provides that an out-of-state bank that does not operate a branch in New York may not establish a de novo branch in New York, but only enter New York by means of an acquisition. An "out-of-state bank," as defined in Section 222(1) of the Banking Law, means a "state bank" as that term is defined in Section 3(a)(2) of the Federal Deposit Insurance Act ("FDIA"). A "state bank" is defined in Section 3(a)(2) of the FDIA as any bank, trust company or other banking institution that is engaged in the business of receiving deposits, other than trust funds and is incorporated under the laws of any state. Since the Bank is not a "state bank" for purposes of the FDIA, it is not subject to the provisions of Article 5-C.
The Banking Law, in response to the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Reigle-Neal Act"), was amended in 1996 to create a new interstate branching regime for out-of-state insured banks and to repeal the existing reciprocal interstate branching provisions which permitted banks chartered by the other states to branch de novo into New York if their states of incorporation permitted New York State-chartered banks to branch into their states. Under the Reigle-Neal Act, national banks, state member banks and insured state nonmember banks that are engaged in the business of receiving deposits, other than trust funds (emphasis added) are permitted under federal law to branch interstate. However, since neither the Reigle-Neal Act, nor Section 225-b of the Banking Law deal with interstate branching by a state-nonmember uninsured limited purpose trust company, neither Section 225-b, nor federal law or any reciprocity provisions contained in the laws of other states are determinative for purposes of this analysis.
Article 5, Section 200 of the Banking Law, prohibits a foreign banking corporation from making loans or exercising the fiduciary powers specified in Section 201-b of the Banking Law unless such foreign banking corporation (i) is authorized by its charter to carry on such business and is in compliance with the laws of its state or country of incorporation; (ii) has furnished the Superintendent proof as to the nature and character of its business and its financial condition; (iii) appointed the Superintendent to receive process on its behalf; (iv) provided the Superintendent with a certificate of designation specifying the person to whom the Superintendent may forward such process; and (v) been issued a license as provided in Article 2 of the Banking Law.
The term "foreign banking corporation" is not defined in the Banking Law. However, the term "foreign corporation" is defined in Section 1001 of the Banking Law as a "corporation which is licensed by the Superintendent under the provisions of Article 2 of this chapter [including Section 26 thereof relating to foreign banking corporations] to do business in this State or is applying for such license and a corporation authorized to conduct business in this State pursuant to Article 5-C of this chapter or is applying for such authorization." By employing this definition we conclude that the provisions of Section 200 are applicable to Bank. In the distant past Section 200 licenses were, in fact, issued to at least two banks chartered in another state.
We conclude that the exercise of fiduciary duties by Bank is a permitted activity when Bank is licensed under Section 200 of the Banking Law. As such, Bank, a limited purpose trust company, may conduct fiduciary activities in New York upon receipt of a branch license under Section 200. Bank would, of course, be required to comply with the usual provisions of the Banking Law applicable to Section 200 licensees.
I trust that the foregoing will be of help to you. Should you have any further questions, please feel free to call me at [ ].