January 10, 2002
TO: Assistant Deputy [ ]
Foreign Financial Services Division
FROM: Assistant Counsel Kane
RE: [ ] Inquiry Regarding New York Banking Laws and Regulations Affecting Foreign Banks
DATE: January 10, 2002
What are the differences in permissible activities in your State between a representative office, a branch and an agency?
A Representative Office
Supervisory Policy FB 2, which was enacted pursuant to New York Banking Law ("Banking Law") Article V-B, Section 221-a sets forth the limitations on the activities which may be conducted by a representative office of a foreign banking corporation on behalf of such foreign banking corporation. Those activities are as follows: (1) solicitation of loans in principal amounts of $250,000 or more and, in connection therewith, assembly of credit information, making of property inspections and appraisals, securing of title information, preparation of applications for loans (including making recommendations with respect to action thereon); (2) solicitation of purchasers of loans from the foreign banking corporation; (3) solicitation of parties to contract with the foreign banking corporation for the servicing of its loans; (4) solicitation of other banking business on the behalf of the foreign banking corporation except for the solicitation of deposit-type liabilities; (5) conduct of research; (6) acting as liaison with customers of the foreign banking corporation; (7) acting as liaison with correspondents of the foreign banking corporation; (8) execution of loan documents for loans in principal amounts of $250,000 or more pursuant to specific written authorization with respect to each such loan; (9) in the case of regional administrative offices, manage, supervise or coordinate the operations of the foreign bank or its affiliates, if any, in a particular geographic region, including credit approvals; and (10) any other activity approved in writing by the Superintendent.
Notwithstanding the foregoing, a representative office may not engage in a banking business or trading activities for the account of the foreign banking corporation, or, on behalf of the foreign banking corporation, make final credit decisions (except in the case of a regional administrative office), execute documents for or solicit loans in principal amounts of less than $250,000, disburse funds, transmit funds, accept loan repayments or solicit, accept or contract for deposits or deposit-type liabilities.
In practical terms, a representative office is a marketing office that serves as a liaison between the head office of the foreign bank and its customers and correspondent bank(s). Persons designated as U.S. representative may visit or receive visits at their offices from customers of the parent bank and from parent bank officials who may be traveling in the area. U. S. representatives may also visit or receive visits from officials of correspondent banks and corporations seeking information about the parent bank or its home country. By maintaining contact with its parent correspondent bank(s), the representative office can expedite and resolve operating problems arising from transactions entered into between the correspondent bank(s) and the head office. It should be understood that the authority to operate a representative office is not a license to conduct a banking business in New York.
A Branch or Agency
Section 200 of the Banking Law provides that no foreign banking corporation shall transact in New York the business of buying, selling, paying or collecting bills of exchange, or of issuing letters of credit or of receiving money for transmission or transmitting the same by draft, check, cable or otherwise, or of making loans, or of receiving deposits, or of exercising the fiduciary powers specified in section two hundred one-b of the Banking Law, or transacting any part of such business, or maintaining in New York its initial agency or branch for carrying on such business, or any part thereof unless such corporation has been issued a license to conduct such business and complied with the other statutory requirements set forth in the Banking Law.
There are several provisions contained in the Banking Law which are specific to branches. Section 202-i permits the branch or branches of a foreign banking corporation to conduct a safe deposit business. And as discussed further below, pursuant to Section 202-j, the branch or branches of a foreign banking corporation may act as trustee under self-employed retirement trusts or individual retirement trusts.
The primary difference between branches and agencies under the Banking Law is that agencies are subject to restrictions on their ability to receive deposits. Section 202-a of the Banking Law provides that a foreign banking corporation licensed to maintain one or more agencies in New York shall not engage in the business of receiving deposits in New York. This restriction is subject to the following provisos that (a) the foreign banking corporation may maintain for the account of others credit balances incidental to, or arising out of, the exercise of its lawful powers; (b) that the Banking Board is authorized to adopt regulations that permit a foreign banking corporation which is licensed to maintain one or more agencies in New York, to issue to a corporation, partnership, trust, unincorporated association, joint stock association or similar association obligations each in a principal amount of not less than one hundred thousand dollars; and (c) that such foreign banking corporation may accept deposits other than from citizens or residents of the United States as the Superintendent shall define by regulation.
A Domestic Bank purchased by an International Financial Institution
A State-chartered or national bank purchased by a foreign banking corporation is still considered a domestic institution and, as before the purchase, can exercise the same powers as can any other domestically chartered bank.
Does your State allow international branches to accept wholesale deposits that are insured by the Federal Deposit Insurance Corporation ("FDIC")?
Although state-licensed branches are not eligible for federal deposit insurance, insured (State) branches, established before December 19, 1991, may continue to accept deposits which will be insured.
Does your State restrict a foreign bank from buying a domestic bank (other than the general restrictions that would apply to domestic bank acquisitions, such as the five-year rule)?
Currently there are no restrictions on a foreign bank buying a domestic bank. The foreign bank would naturally have to make application to receive the Banking Board's approval in the case of a change of control involving a New York State-chartered bank. A New York bank holding company application would be required in the case of the acquisition of two or more banks located in New York, whether or not State-chartered. The application would be reviewed for the financial solvency of the resulting reorganization, management quality, the foreign bank's operational integrity and home country regulatory experience, U.S. regulatory experience of the domestic bank, economic/competitive impact as a result of the acquisition, etc.
Does your State have any international branches that accept retail deposits that were set up prior to statutory changes that now reportedly require a foreign banking organization to purchase an existing depository institution in order to accept deposits?
New York State has approximately eight (8) foreign branches that have FDIC insurance. These institutions were grandfathered in when FDICIA was enacted. New York State does not require that these banks purchase a depository institution in order to continue to maintain these deposits or to accept future deposits.
Does your State restrict an International Agency or Branch conducting securities activities, insurance activities or fiduciary activities?
Generally, New York law allows a branch or agency (subject to the deposit exception for agencies discussed above) the powers of New York State-chartered banks. Foreign branch and agency activities are also subject to home country and U.S. federal law requirements.
Section 201-b of the Banking Law provides that every foreign banking corporation licensed to maintain one or more branches or agencies in New York and holding an authorization certificate issued pursuant to Section 201-b may, subject to such further limitations and restrictions as the Superintendent may prescribe, exercise the powers described in sections one hundred (fiduciary powers), one hundred-a (fiduciary capacities; appointment by court authorized; bond, oath; accounting), one hundred-b (investments as fiduciary; when interest is to be paid; preference) and one hundred-c (common trust funds) of the Banking Law to the same extent, and subject to the same requirements and restrictions as apply in the case of trust companies in the exercise of such power.