NYSBL 96(1) and 105 and 113
October 25, 2004
To: Economist Kupfer
From: Assistant Counsel Kane
Subject: [ ] - Proposed Relocation of Principal Office
Is a bank permitted to designate a location from which it conducts back office activities as a banking office (either branch or principal office) and if not required to be authorized as a banking office, under what circumstances would it be permitted to be authorized as a banking office?
If the bank is permitted to change the designation of its principal office to the location from which it currently conducts back office activities, is it required to maintain its current principal office as a branch?
The Legal Division concludes that it is impermissible under the Banking Law and as a matter of Departmental policy for a bank to designate as its principal office a location from which solely conducts administrative activities and does not conduct activities which would constitute the business of banking.
If the bank were permitted to redesignate its principal office, which, as noted above, is impermissible based on the facts presented, the bank would be required to file an application to establish a branch office in the old principal office location if it continued to conduct banking functions at that location.
[ ] is a State-chartered limited-purpose bank chartered to accept municipal deposits. [ ] is a subsidiary of [ ], a federally-chartered thrift institution, which is the wholly-owned subsidiary of [ ].
The principal office of [ ] is located in [ ], New York. [ ] represents that [ ], and [ ] subsidiaries have designated [ ] administrative center, which is located in [ ] New York, as their principal offices. Pursuant to an agency agreement between [ ] and [ ], [ ] is permitted to receive deposits for [ ] at any of [ ] locations. Deposits are then transferred to [ ] location for accepting and crediting.
On March 5, 2004, [ ] submitted an application, pursuant to Supervisory Procedure G-105, requesting permission to change the designation of [ ] principal office from [ ] to [ ] administrative center located in [ ]. The Department subsequently notified [ ] that it was treating the application as a change of location and not a change of designation of principal office. On May 19, 2004[ ] resubmitted an application under Supervisory Procedure G 105.
The March 5th application states that the [ ] board of directors is requesting permission to designate [ ] as the principal office, but is not requesting permission to maintain the [ ] location as a branch office of [ ]. The May 19th application further provides that no space in the [ ] location will be occupied by or subleased to [ ]. The May 19th application further provides that this is a change on paper only since no facilities, offices, equipment, desks or people will be relocated as a result of the proposed change.
Designation of [ ] Administrative Center as Principal Office Banking Law Section 113 provides that "Any bank or trust company may make a written application to the superintendent . for leave to change its place or one of its places of business to another place in the state or for leave to change the designation of its principal office to a branch office and to change the designation of one of its branch offices to its principal office." Supervisory Procedure G 105 sets forth the criteria for an application for a change of location or a change of designation of principal office. The Legal Division has reviewed Section 113 and the opinions rendered thereunder and found none of which addresses the specific fact pattern presented.
As noted above, the proposed redesignation of [ ] principal office is a change on paper only since no facilities, offices, equipment, desks or people will be relocated as a result of the proposed change. Presently, [ ] conducts the following activities at the [ ] and [ ] locations, respectively: [ ]
Meetings of the Board of Directors.
Offices and meetings of the Executive Officers.
Investment portfolio management.
Purchases and redemptions of municipal securities.
Accounting and recordkeeping.
Management of public funds collateral.
Internal audit reviews.
Bidding on municipal securities.
Execution of legal documents.
Collection of principal and interest payments on municipal securities.
Wire transfers for purchases of municipal securities.
Support staff and systems.
Marketing and account solicitation.
Opening and servicing of accounts.
Customer liquidity management.
Cash management services.
The question has been asked whether [ ] is, or should, be paying rent for the activities conducted at the [ ] location. We note that an inconsistency seemingly exists since [ ] states in its application that the redesignation of its principal office is a change on paper only, and it will neither occupy nor sublease space at the [ ] location, yet, in response to a further inquiry from the Department represents that it conducts the above-enumerated activities at the [ ] location, Examiner Kupfer noted that this inconsistency could arise from the fact that the activities being conducted at the [ ] location are being done by [ ] employees on behalf of [ ] under the agency agreement, and the fact that [ ] board and management consist of [ ] people. Whether or not [ ] is paying rent for the activities being conducted by [ ] on its behalf at the [ ] location is arguably irrelevant since [ ] is being compensated to conduct these activities on behalf of [ ]. The Department could request further clarification from [ ] as to this issue.
Banking Law Section 4001 provides that the organization certificate of a bank shall specifically state the place where its office is to be located. Implicit in this requirement is that a bank will be conducting the business of banking at this location, since, we note that as part of the application process an applicant must address how the public convenience and needs are met. Banking Law Section 96(1) provides that the following activities constitute the business of banking for State-chartered banks and trust companies:
"To discount, purchase and negotiate promissory notes, drafts, bills of exchange, other evidences of debt . lend money on real or personal security; borrow money and secure such borrowings by pledging assets; buy and sell exchange, coin and bullion; and receive deposits of moneys, securities or other personal property upon such terms as the bank or trust company shall prescribe; and exercise all such incidental powers as shall be necessary to carry on the business of banking."
When evaluated in light of the activities enumerated in Banking Law Section 96(1), the nonpublic activities conducted by the [ ] office cannot be construed as core banking activities since said activities are clearly administrative in nature. Moreover, it is established Banking Department policy that a State-chartered bank or trust company must conduct the business of banking at a designated principal office or branch office. In terms of the activities enumerated by the Bank, it appears that the solicitation and opening of accounts performed at the [ ] location may be the only activities that would be considered "core" banking activities.
As noted above, the [ ] represents that its parent, [ ], [ ] subsidiaries and [ ] have designated [ ] administrative center as their principal offices. 12 C.F.R. Section 545.91 provides that "all operations of a federal savings association shall be subject to direction from the home office". Please note that under federal law the principal office of a federal savings association is referred to as its home office. In a September 30, 2004 telephone call with Kevin O'Connor, Associate Director of the OTS Legal Division (Washington) he indicated that while it was possible that one might broadly interpret the regulatory language so that a home office located in a back office could "direct" the activities of a federal savings association, the position of the OTS has been, for at least the last 30 years, that the home office of a federal savings association must be one at which the business of banking is conducted. Your Division may wish to bring [ ] representations regarding [ ] and [ ] to the attention of the OTS.
Since no banking business is currently conducted or will be conducted in the future at the [ ] location, [ ] is attempting to create the legal fiction that [ ] is [ ] principal office. In order for the Banking Department to authorize [ ] changing its principal office to [ ] would have to actually conduct, at that location, those activities considered core banking activities and as such taking deposits, making loans or cashing checks. Based on the foregoing, the Legal Division concludes that [ ] proposed change of location is impermissible both under the Banking Law and as a matter of Departmental policy.
Status of [ ] Location if Redesignation of Principal Office to [ ] is Permitted
The March 5th application states that the [ ] board of directors is requesting permission to designate [ ] as the principal office, but is not requesting permission to maintain the [ ] location as a branch office of [ ]. As discussed above, the proposed redesignation of [ ] principal office to its [ ] administrative center is impermissible under the Banking Law and as a matter of Departmental policy, unless [ ]were to seek Departmental approval to actually conduct the business of banking at that location.
Assuming that [ ] were to actually do so, it could then redesignate [ ] as its principal office. [ ] would then, in order to continue to conduct business at the [ ] location, be required to file an application to establish a commercial bank branch office pursuant to Supervisory Procedure CB 103.