Supervisory Procedure CB 109
To: Senior Examiner Shah - CRB
From: Alan M. Weinberg -Legal Division
Date: November 30, 2006
Subject: [---] (Bank) - BL 106 and CB 109 Notice re Deposits
Is Bank's request for authorization dated September 6, 2006 concerning its intended deposits sufficient to meet the requirements of Banking Law Section 106 and CB 109?
No, Bank's letter is not legally sufficient to meet the requirements of CB 109. First, the reasons why the Bank wishes to make such deposit are not stated in the letter application. Second, the letter application does not specify the maximum amount to be deposited in each of the three named banks.
Bank sent the attached letter of September 6, 2006 to the Department requesting authorization to make investments in the federal funds ("fed funds") or deposits of three specified banks [---] of up to 200% of the capital stock, surplus fund and undivided profits of Bank. the purpose of this analysis, it is assumed that this means that they want to make deposits or sell fed funds to these banks in this amount.
Supervisory Procedure CB 109.1 provides that
A bank or trust company which proposes to deposit an amount in excess of 100% of its capital stock, surplus fund and undivided profits with another banking corporation or a private banker should request the superintendent's permission to make such deposit, in accordance with Banking Law § 106, by submitting a letter application for such permission, addressed to the Superintendent of Banks, New York State Banking Department, specifying the name of the proposed depositary and the reasons why the applicant wishes to make such deposit. (Emphasis added.)
Bank's letter does not state the reasons why the Bank wishes to make a deposit in excess of the threshold. Therefore, Bank's letter is not legally sufficient to meet the requirements of CB 109.1. We note that the submission of the Bank of a board resolution meets the requirements of CB 109.2
Also, we note that the Bank's letter states that the Bank requests authorization to invest in federal funds or deposits in the three banks; whereas, the board resolution states that the Bank requests authorization to invest in the three banks; but does not specify in what type of investment. In this context, the type of transaction is important. As to a sale of federal funds, you should be aware of the following two points. First, as provided in Banking Law Section 103(1)(h) the limitations in that subdivision do not apply to any advance of federal funds by a bank or trust company to a commercial bank, provided such advance is made on the condition that it is repaid on the next business day following the day on which the advance is made. Therefore, as to such advances of federal funds, if they are only of this short duration, there is no need for that to be the subject of a request by the Bank. If they are of a longer duration, they would need to be covered by a request and a resolution by the Bank. We further suggest that the Bank's corporate resolution specify the nature of the type of transactions (i.e., deposits, sale of fed funds) that the Bank seeks to have with the three banks because the type of transactions pursuant to the resolution ought to be more clearly stated than a general reference to investments.
Second, we note that Bank's intended deposits in any of the three banks set forth in the letter mayor may not exceed the threshold set forth in CB 109.1 and Banking Law Section 106.
Banking Law Section 106 provides that
No bank or trust company shall deposit any of its funds with any other foreign or domestic banking corporation or private banker in an amount exceeding one hundred per centum of the capital stock, surplus fund and undivided profits of such bank or trust company unless such other banking corporation or private banker has been approved by the superintendent as a depositary for the purpose of this section, in which case the amount so deposited may equal but shall not exceed such per centum of the capital stock, surplus fund and undivided profits of such bank or trust company as the superintendent shall approve.
Bank's letter is not clear, however, on the maximum total deposits that it intends to make at each of the depositories. Rather, the letter lists three depositories and seems to place a cap of 200% of the capital stock, surplus fund and undivided profits of Bank on the aggregate total to be deposited at all three depositories.Bank need not have sent a letter listing three depositories if it intended to place a cap of 100% of the capital stock, surplus fund and undivided profits of Bank on the total to be deposited at each of the three depositories. That the letter places a cap of 200% of the capital stock, surplus fund and undivided profits of Bank on the aggregate total to be deposited among the three depositories leads one to suspect that Bank intends to exceed a cap of 100% of the capital stock, surplus fund and undivided profits of Bank on the amount to be deposited at at least one of three depositories. The letter application and the resolution should be specific as to the maximum amount to be deposited in each of the three named banks so that the Superintendent can be presented with a clear proposal and can approve or disapprove of it.