Banking Interpretations

NYSBL 105 and Supervisory Policy and Procedures G8

July 26, 2006

[ ]

Re: Request Concerning an Out-of-State State Bank
Opening an Office in New York

Dear [ ]:

Your letter of May 19, 2006, addressed to Diana L. Taylor, Superintendent of Banks, has been forwarded to me for a response.
By e-mail dated July 18, 2006 you provided additional information in response to questions raised by the Legal Division. You represent [ ] (the “Bank”), an industrial bank chartered in the State of Utah, whose deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s primary businesses are deposit-taking and commercial lending. The Bank is seeking to use a portion of its excess deposits to invest in bank eligible securities. You are therefore requesting confirmation from the Banking Department (the “Department”) that the Department has no objection to the Bank establishing an office in New York State to engage in investment management of its own portfolio.

By way of background, I will restate the salient facts in your submissions.

Approximately five to ten employees responsible for managing the Bank’s investment portfolio will be located at the headquarters building of the Bank’s parent, [ ] (the “Office”). These employees will manage an investment portfolio [ ]. Such investment will be undertaken by the employees in New York. The employees in New York will not engage in deposit-taking or commercial lending activities. Nor will the employees in
New York engage in transactions with customers (retail, commercial or otherwise). These employees will directly, or indirectly through broker/dealers, execute trades, swaps, and buy and sell bank eligible securities. In connection with such transactions, the employees in New York may deal with third parties as counterparties to such transactions. However, the Bank does not view such counterparties as customers of the Bank. In addition, the Bank will not advertise the presence of the employees in New York.

In accordance with Supervisory Policy G8, an industrial bank chartered under the laws of any other state is required to register as a representative office of the bank if it engages in representational functions on behalf of the banking institution, not including a branch office of a banking institution or any office engaged solely in administrative or supervisory functions. The permissible activities for a representative office are representational in nature and are enumerated in Section 8.4 of Supervisory Policy G 8. The activities described in your letter are not of the type that would either be permitted at a representative office, or require a representative office registration.

While New York State Banking Law does not contain a formal definition for “branch office,” it is generally considered to be any location where a bank transacts any part of its usual business of banking including receiving deposits, making discounts, receiving for transmission or transmitting money in any manner whatsoever, or issuing notes or other evidences of debt to be loaned or put into circulation as money. By way of comparison, you also cite the following test employed by both the Office of the Comptroller of the Currency (“OCC”) and the FDIC for determining whether a facility constitutes a branch: (1) if it engages in core banking functions (e.g., receiving deposits, paying checks or lending money); (2) if it is established (e.g., owned or rented) by a bank; and (3) if it offers the bank’s customers some convenience that gives the bank a competitive advantage over other banks. You note that both the FDIC and the OCC have opined that a facility that does not provide access to the public with no potential for in-person contact with the bank’s customers at the facility, does not provide the bank a competitive advantage and therefore is not a branch. The Department would adopt a similar approach in analyzing the proposed Office of the Bank in the scenario you have presented. Since the Office will solely be involved in investment management activities for the Bank, will not be engaged in its core banking business of either deposit-taking or commercial lending, and will not hold itself out to the public as an office of the Bank or engage in customer, contact, the Department would not consider the Office to be a branch of the Bank.
Accordingly, based on the representations in your submission, the Department has no objection to the Bank’s establishment of an Office in New York to engage exclusively in investment management of the Bank’s portfolio, nor would a formal notice to, or approval from, the Department, be required to do so.

I trust the foregoing is responsive to your inquiry.

Sharon Cherry
Associate Attorney