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Banking Interpretations

NYSBL Sec. 97(4-a)

June 06,2005 

From: Rosanne NotaroNotaro/legal/NYSBD
Subject Fw: Operations subsidiaries

Dear [ ]:

Deputy Superintendent and Counsel Sara Kelsey forwarded your email below to me for response. I apologize for the delay in getting back to you.

You inquired about the New York State Banking Department's procedures governing investments by banks in operating subsidiaries. Part 14 of the General Regulations of the Banking Board (3 N.Y.C.R.R. Part 14) governs investments by commercial banks and trust companies in operating subsidiaries. In addition, the Department issued an Industry Letter dated June 16, 2003, clarifying the procedures outlined in Part 14. This letter is available on the Department's website (www.banking.state.ny.us)under the heading "Industry Letters".

You specifically inquired about percentage ownership requirements and geographical limitations relating to operating subsidiaries. Part 14, by its terms, is limited in its application to corporations of which the bank or trust company is or will become the owner of at least a majority of the voting stock and which are controlled by no other person. However, by interpretation, the Department has acknowleged that banks and trust companies may invest in subsidiaries that are in other than corporate form (e.g. LLC, partnership), and also that banks and trust companies may have less than majority ownership interests in operating subsidiaries. By "operating subsidiary", the Department means a subsidiary engaged in the transaction of business in which the bank or trust company could engage directly. In such situations -- i.e. involving a non-corporate entity or a less than majority ownership -- the Department's policy is to require the bank or trust company to file a Part 14 notice just as it would for majority-owned corporate subsidiary. Also, when the investment is a less than majority interest, the Department has required the same commitments and conditions relating to the non-controlling investment as the OCC has imposed on national banks making similar non-controlling investments in subsidiaries (these commitments and conditions are found in 12 CFR Part 5 and OCC interpretations). Finally, regarding geographical limitations, neither the New York Banking Law (Section 97(4-a)) or Part 14 or any interpretation of which I am aware places any geographical limitation on the permissible location of New York state bank or trust company operating subsidiaries, or on the application or reach of the Part 14 procedures.

I hope that this is helpful.

If you have any questions, please do not hesitate to call me at (212) 709-1663.

Sincerely,

Rosanne Notaro
First Assistant Counsel-Banks