October 23, 1974
Dear [ ]:
This is in response to your June 20, 1974 inquiry concerning the ability of New York State commercial banks to lend U. S. Government securities and to take as collateral certificates of deposit or bankers acceptances of similar maturity date under matched repurchase agreements.
While the Banking Law does not generally prescribe the form of collateral relative to commercial bank loans, section 103 of the Banking Law deals, in part, with restrictions on loans to any one person and, subject to exceptions enumerated in that section, provides for a general limit to any one person of 10% of the bank's capital stock, surplus fund and individual profits. One such exception applies to
(2) any loan secured by not less than a like amount of direct obligations (based on their principal amount or market value, whichever is lower, at the time the loan is made) of the United States or of this state or of any such department, agency or instrumentality of the United States or this state;
In interpreting similar language with respect to savings banks investments, this Department has held that such language does, in fact, authorize the loan of U.S. Government obligations against other government obligations as collateral under the type of arrangement mentioned in your letter.
While loans of securities collateralized by certificates of deposit or bankers acceptances are considered permitted investments for commercial banks, they would not, however, be entitled to exemption from the general 10% limitation although, with respect to bankers acceptances, the limit could be raised to 25% under certain circumstances.
I trust this is helpful.
Very truly yours,
Arthur A. Gelman
bcc: Superintendent Albright
First Deputy Vestner