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Banking Interpretations

NYSBL 105 and Supv. Procedure G-8

December 31, 2004

To: Senior Examiner Gerald J. Stein - Community Financial Services Division

From: Associate Counsel Sam L. Abram, Legal Division

Subject: [ ] - Consolidation of Trust Business


Issue

Can two state chartered banks that are subsidiaries of [ ] share a single trust audit committee with each other and with [ ] national bank subsidiaries?

Does the proposed consolidation of the trust functions of [ ] four bank subsidiaries raise any other issues under the Banking Law?

Recommendation

Nothing in the New York Banking Law and regulations mandates the composition of the trust audit committee of a New York trust company. While there is therefore no legal objection to the proposal for a single trust audit committee, the operating division should determine whether the proposal raises any safety and soundness issues.

Whether the use of the premises of one [ ]bank subsidiary by another requires those premises to be licensed as a representative office of the using bank is a question of fact which depends on the nature and extent of such use.

Background

[ ] is a bank holding company for four banks, two state chartered banks, [ ] and two nationally chartered banks" [ ]
[ ] wishes to consolidate its trust business in order to improve quality and efficiency.'

[ ] proposes to centralize all trust operations within [ ], which will enter into agreements -with each of the other subsidiary banks regarding transferring of trust accounts to [ ] where permissible and appropriate, servicing of non-transferred trust accounts for which such other banks are fiduciaries, and use of such other banks premises for trust business.

All of the banks will retain trust powers. While all of the officers and employees of the trust business will be officers and employees of, [ ] some will also have officer titles with one or more of the other subsidiary banks.

Space at the other subsidiary banks would be used by [ ], for customer meetings, telephone calls and local office facilities for [ ] trust officers in the area of the other bank.

[ ] proposes to organize a trust audit committee and one or more other trust committees which would have the legal authority to serve as such for [ ] and for the other subsidiary banks.

[ ] has requested the Department's views an the permissibility of this committee structure for the state chartered subsidiary banks. In addition, you have requested that the Legal Division review the permissibility of the proposed restructuring under the Banking Law and Sections 23A and B of the Federal Reserve Act.

Reasoning

Shared Trust Audit Committee and Other Trust Committees I have been unable to locate any provisions of the Banking Law or regulations that require trust companies to have audit or other committees.' Thus, there are no New York legal requirements applicable to the composition of trust audit or other trust committees, and any structure which the operating division concludes meets safety and soundness requirements would be legally acceptable.

In contrast, national banks engaging in fiduciary activities are required to have a fiduciary audit committee, which must consist of the bank's directors "or the audit committee of an affiliate of the bank" and meet certain other requirements. 12 CFR Section 9.9.

Serving as Trust Officer of Several Affiliated Banks This is permitted under the Banking Law. See memorandum from the writer to John Lindquist, dated August 3, 2004, answering this question from, [ ]. ' (The "Lindquist Memo")

Use of Affiliated Banks' Premises [ ] 'indicates that [ ] officers will use space in its sister banks for customer meetings, telephone calls and local office facilities for, [ ] trust officers in the area, and will compensate the sister banks for such use. In the judgment of [ ]'s counsel, such space


1 Under Part 22.2. of the General Regulations of the Banking Board, a common trust fund must be managed by a trust investment committee composed of three members, "who shall be capable and experienced officers or directors of the trust company." (emphasis added). It has not been indicated that any of the [ ] bank subsidiaries operate common trust funds and in any event the requirements of Part 22.2 could be met by double-hatting the members of the trust investment committee as necessary.

will not constitute a branch office of [ ] because no banking services will be carried on or offered at that office and because no trust accounts will be accepted, no original trust files maintained, no investment decisions made and no distributions effected in that space. As indicated in the Lindquist memo, so long as [ ] is not engaging in fiduciary
activities at the affiliated bank's location, that location need not be licensed as a branch of [ ].

[ ] goes on to state its counsel's opinion that in the circumstances described, Supervisory Policy G 8 does not apply. Although the basis for counsel's conclusion is not stated, presumably counsel believes that in the circumstances [ ]s use of the affiliate's premises does not amount to the operation of a representative office of [ ].

Whether or not the activities of [ ] at the office of an affiliated bank amount to the operation of a representative office of [ ] is a question of fact. If [ ] trust officers simply use the space for administrative or supervisory functions, it will not constitute the operation of a representative office. If, however, they routinely conduct meetings on the affiliate's premises to liase with existing trust customers or solicit trust business from potential customers, the premises are arguably a place of business at which, [ ] engages in permissible representational activities and should be registered accordingly
under Supervisory Policy G 8. The operating division should obtain a copy of the opinion of [ ]'s counsel for the Department's information.

[ ]The Legal Division does not render opinions regarding Sections 23A and 23B of the Federal Reserve Act, as these are matters of federal law and regulation. Such questions would be more appropriately analyzed by the Federal Reserve.

Noted:______
SAK