February 11, 2002
Re: Interaction of New York and Connecticut Laws
Dear [ ]:
Your letter of December 27, 2001 addressed to Deputy Superintendent [ ] has been referred to me for reply.
As I understand it, [ ] ("Bank"), a New York State-chartered bank, which currently maintains a branch in Connecticut which it acquired from a federally-chartered savings bank based in California, now wishes to establish an additional de novo branch or branches in Connecticut. The Commissioner of the Connecticut Banking Department has indicated that he would permit Bank to establish such de novo branch or branches in Connecticut, if New York would permit a Connecticut State-chartered bank, which acquired a branch in New York from a federally-chartered savings bank, to establish a de novo branch or branches in New York. While I have not been furnished with details of the transaction involving Bank's acquisition of the California federally-chartered savings bank's branch in Connecticut, I am assuming it involved the acquisition of the banking business of the branch (i.e. assets and liabilities, including deposit liabilities).
The New York Banking Law ("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, are permitted under federal law to branch interstate.
Following enactment of the Reigle-Neal Act, New York enacted New York's Interstate Branching Act (the "NYIBA"), codified at Article V-C of the Banking Law (Banking Law §§ 222 et. seq.). To answer the latter part of your inquiry first, the NYIBA does permit de novo branching within New York by an out-of-state bank which has entered New York by means of a permissible interstate banking transaction. Specifically, Banking Law Section 224 provides that an out-of-state bank which maintains one or more branches in this state may open and occupy one or more additional de novo branches in this state with prior approval of the Superintendent. However, as New York opted not to allow de novo branching as a means of initial entry into New York, an out-of-state bank may only enter New York by means of an acquisition transaction (See Banking Law §§ 223, 222(7)). Thus our analysis turns on whether the acquisition by a Connecticut State-chartered bank of a New York branch of an out-of-state federally chartered savings bank would meet the initial entry requirements set forth in Banking Law Section 223, thus allowing the Connecticut bank to establish additional branches in New York.
A Connecticut bank would meet the definition of "out-of-state bank" which could engage in an "acquisition transaction" as provided in Banking Law Section 223. Banking Law Section 222(1) defines the term "out-of-state bank" to include both an "out-of-state national bank" and an "out-of-state state bank." "Out-of-state state bank", in turn, is defined in Banking Law Section 222(2) as a "state bank" as that term is defined in Section 3(a)(2) of the Federal Deposit Insurance Act ("FDI Act"), but the term does not include a New York banking organization. A "state bank" is defined in Section 3(a)(2) of the FDI Act to include 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. Thus, the Connecticut bank would meet this definition.
The term "acquisition transaction" is defined in Banking Law Section 222(7) to mean any merger, consolidation or purchase of assets and assumption of liabilities of all or part of a banking institution. While the term "banking institution" as used in Banking Law Section 223, is not specifically defined for purposes of Article V-C, the term could be interpreted to include a federal savings association. In addition, the acquisition of a single branch of a banking institution is deemed to constitute "part of a banking institution" for purposes of Banking Law Section 223. Further, the Department has taken the position that the NYIBA would permit the acquisition of a New York branch of an out-of-state banking institution.
Accordingly, to return to the threshold inquiry, we believe that a Connecticut State-chartered bank could gain entry into New York by acquiring a branch located in New York of a federally-chartered savings bank headquartered in another state. In sum, we believe that the NYIBA would permit the transaction you described.
I trust that the foregoing will be of help to you. Should you have any further questions, please feel free to call me at [ ].