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Banking Interpretations

NYSBL 131(1) & 200

New York State Banking Department
Memorandum

To: Examiner Sajic - FWBD
From: Rosanne Notaro – Legal Division
Date: December 20, 2007
Subject: Subject:  [—] - Establishment of nonbank lending subsidiary in New York

Issue

Is there any legal objection to the establishment of a nonbank lending subsidiary in New York by [—]? Would any licenses under the NYBL be required?

Recommendation

No legal objection.  We note also that the Federal Reserve raised no objection.

Background

[—] ("Bank") is a foreign bank headquartered in Germany that currently maintains a representative office in New York. It plans to close its representative office and establish a lending subsidiary ("Capital Corp") in New York, for which it believes it would not require a banking license. The Bank is seeking to avoid requiring a banking license in the U.S. so that it is not subject to the federal Bank Holding Company Act. It seeks to operate the lending company by January 1, 2008.

Reasoning

The Bank's counsel, Sullivan & Cromwell, provided a lengthy outline summarizing the proposed structure and operations of the Bank, and seeking the Department's nonobjection to the proposal as well as confirmation that no banking license would be required.

Without repeating all the points made in the outline, the Bank's counsel sought to illustrate that Capital Corp will be operated as a bona fide stand-alone subsidiary of the Bank, and would not function as the "alter ego" of the Bank (which, if it did, would cause the Bank to in effect operate an office in the US but evade licensing requirements).

Since Capital Corp would be engaged only in lending-related activities, Capital Corp would not be deemed to require a banking license (since generally an entity must be engaged in other activities beyond merely lending - such as deposit-taking - in order to be required to be licensed to engage in banking). Also, based on the structure, it appears clear that Capital Corp will be acting on its own behalf and not the Bank's behalf, so the Bank would not be deemed to be conducting an unlicensed banking business.

Accordingly, we do not believe a banking license is required and we have no objections to the proposal. We also note that the Federal Reserve raised no objections to [—]'s proposal.

R.N.