Explanatory All Institutions Letter
February 7, 2006
TO THE INDIVIDUAL OR INSTITUTION ADDRESSED:
RE: Amendment to Part 31 of the General Regulations of the Banking Board ( Investments of Banks or Trust Companies in Certain Corporations )
At its February 2, 2006 meeting the Banking Board authorized the final adoption of the attached amendment to Part 31 of the General Regulations of the Banking Board . The regulation will become effective upon publication in the State Register, which is expected to occur on February 22, 2006.
The amendment adds a new Part 31.13 of the General Regulations of the Banking Board in the form attached, permitting banks and trust companies to invest in the common stock of Atlantic Central Bankers Bank (“Atlantic Central”).
Banking Law Section 97(5) provides that banks and trust companies may, in addition to making investments specifically permitted by other subsections, invest in “[s]o much of the capital stock of any other corporation as may be specifically authorized by the laws of this state or by resolution of the banking board upon a three-fifths vote of all its members.”
Atlantic Central is a bankers’ bank. In the past, the Banking Board has individually approved each investment by a state chartered bank in Atlantic Central (and other bankers’ banks as well) by a separate resolution. The regulation permits any state chartered bank to invest in the common stock of Atlantic Central, so long as the investment does not exceed 10% of the investing bank's capital and surplus, or 5% of any class of Atlantic Central's voting stock. An investment in excess of the minimum required to become a member of Atlantic Central will require the approval of the Superintendent.
It should be noted that, in contrast to the Section 97(5) restrictions on stock ownership applicable to banks and trust companies, Section 235(31) expressly authorizes savings banks to make investments not specifically authorized by law up to certain limitations (the “leeway” authority). Banking Law Section 454(31) authorizes credit unions to hold membership in other credit unions, including “corporate credit unions”, which provide services analogous to bankers’ banks.
Very truly yours,
Sam L. Abram
Secretary of the Banking Board