Explanatory All Institutions Letter
January 17, 2007
TO THE INDIVIDUAL OR INSTITUTION ADDRESSED:
RE: Adoption of Amendments to Part 322 of the Superintendent’s Regulations (Pledge of Assets and Maintenance of Assets By Licensed Foreign Banking Corporations In New York)
The Superintendent has adopted the attached amendments to Part 322 of the Superintendent’s Regulations. The regulations will become effective upon publication in the State Register, which is expected to occur on January 24, 2007.
Banking Law, § 202-b provides that upon opening a branch or agency and thereafter, a foreign banking corporation shall keep certain assets on deposit in New York (the “asset pledge”), in accordance with such rules and regulations as the Banking Board may promulgate, in “an aggregate amount to be determined by the superintendent…and subject to such conditions as he shall deem necessary or desirable for the maintenance of a sound financial condition, the protection of depositors and the public interest, and to maintain public confidence in the business of such branch or branches or agency or agencies.” Section 202-b(1) of the Banking Law also provides that the Superintendent may designate eligible assets as well as prescribe limitations or conditions upon which assets may qualify.
Part 322 identifies eligible assets and sets forth conditions relating to the asset pledge requirement. The amendments change Part 322 so as to lessen the regulatory burden on foreign banks of complying with the asset pledge requirement, while still ensuring the Superintendent’s supervisory needs regarding the pledging of assets are met, and retaining the flexibility for the Superintendent to strengthen the asset pledge requirement in situations where it may be necessary.
Specifically, the amendments adopt a sliding scale for “well rated” institutions reducing the required pledge from 1% of covered third party liabilities (“Covered Liabilities”) with a cap of $400 million to an amount calculated as follows: 1% of the first $1 billion of Covered Liabilities, ¾ of 1% of the next $4 billion in Covered Liabilities, ½ of 1% of the next $5 billion in Covered Liabilities, ¼ of 1% of the remaining Covered Liabilities, up to a cap of $100 million, while maintaining the current minimum pledge of $2 million. The amendments also allow all institutions to use investment grade assets which are not rated at the highest level for up to one half of the requirement. Formerly, such assets could be used only by “well rated” institutions.
The effect of the amendments will be to decrease the costs of compliance with the asset pledge requirements for most institutions. Many well rated institutions will enjoy reductions in the amount of assets required to be pledged, while all other institutions will benefit from being able to utilize a broader range of assets in meeting a portion of their asset pledge requirements.
The amendments were published in proposed form in the State Register on September 27, 2006. Comments were due by November 13, 2006. Two comments were received, one from a foreign banking corporation licensed to operate a branch in New York and one from an association of international banking institutions. Both commenters supported the proposal. Accordingly, no changes in the proposed amendments have been made.
Very truly yours,
Sam L. Abram
Secretary of the Banking Board