Date: December 6, 1978
To: Examiner Ehli - C/B Division
From: Associate Attorney Gelman
Re: Foreign Branches Applicability Legal Lending Limit to C/D's Acquired
Your question involves the interplay of Banking Law §§103, I106 and 202-f. Specifically you ask whether branches of foreign banking corporations are subject to lending limits with respect to their purchases of bearer certificates of deposit.
Section 202-f states, in part, that:
"Loans, purchases and discounts of notes, bills of exchange, bonds, debentures and other obligations and extensions of credit and acceptances by a branch of a foreign banking corporation within this state shall be subject to the same limitations as to amount in relation to capital stock, surplus fund, and undivided profits as are applicable to banks and trust companies pursuant to article three of this chapter,...."
The issue is whether a bearer certificate of deposit is the type of instrument described in either the above-quoted provision or the parallel provision in §103.1 which states:
"Any extension of credit to a person by means of the issue or confirmation or irrevocable sight letters of credit upon the responsibility of such person, or by means of the discount of purchase of, or investment in, bills of exchange, notes, bonds, debentures or other obligations made, drawn or accepted by such person, shall be considered a loan to such person for the purposes of this subdivision except that (1) in the case of an accepted bill of exchange, the loan shall be considered, subject to clause (2) below, to be made to the acceptor and not to the drawer; and (2) if any bill of exchange, note, bond, debenture or other obligation is endorsed without limitation or guaranteed by any person and discounted with, or sold to, such bank or trust company by such person, the loan shall be considered a loan to such person and not to the maker, drawer or acceptor of such bill or exchange, note, bond, debenture or other obligation."
Three things argue against Ray Yanez's suggestion that bearer certificates of deposit constitute "investments in...obligations" falling under §103's loan limits, namely:
- The rule of ejusdem generis,
- The legal maxim expressio unius est exclusio alterius, and
- The existence of B.L. § 106.
Under the rule of ejusdem generis, courts will limit the general language of a statute by specific phrases preceding it. People v. Bell, 1953, 306 N.Y. 110, 115 N.E. 2nd 821. The rule would limit the term "obligations" to the same subject matter as the instruments enumerated just prior thereto, i.e. bills of exchange, notes, bonds, debentures and letters of credit. All of these constitute evidence of indebtedness capable of being issued by any person. A deposit in a banking organization must be viewed in a class by itself, which leads us to the maxim expressio unius est exclusio alterius. Under the maxim, where a law expressly describes a thing or things to which it applies the inference must be drawn that what is omitted was intended to be omitted. It would only be reasonable to assume that if the legislature had intended deposits (which are, after all, the essence of banking) to be included in §103's loan limitations it would have done so by specific language to that effect.
Finally, the existence of §106 is testimonial to the fact that deposits in banking corporations, while also establishing a debtor-creditor relationship, are in a separate class meriting separate statutory rules. Unless we are to abandon the notion that bearer certificates of deposit are "deposits" we have no choice but to look to section 106, and not §103, for the rules governing their placement.
The "kicker" here, of course, is that the safeguards against a bank's having too many of its deposit eggs in one depository's basket are applicable only to banks and trust companies and not to licensed foreign branches. If this result is trouble- some from a supervisory standpoint, remedial legislation should be suggested by your division or, if possible, an administrative solution explored. I am willing to discuss either solution at your convenience.