Banking Interpretations

NYSBL 202-b (1)
General Regulations Part 322

New York State Banking Department

To: Supervising Examiner Ann Cathcart
From: Assistant Counsel Sam L. Abram
Date: June 24, 2008
Subject: [---] Asset Pledge Question


Do AMRESCO Independence Funding Funding, Inc. U.S. Small Business Administration (“SBA”) Loan-Backed Adjustable Rate Certificates, Series 2000-1 (the "Certificates") constitute "Specified Assets" under Section 202-b(1) of the Banking Law and Section 322.2(a)(1) of the Superintendent's Regulations?


The Certificates do not constitute Specified Assets and should not be accepted by the Department as such.  [---].


This memo responds to a June 10, 2008 memorandum from Supervising Examiner Cathcart to General Counsel Gross (the "Cathcart Memo"). As more fully described in the Cathcart Memo, during a recent examination of the above bank (the "Bank"), it was discovered that the Bank had used the Certificates to meet the Part 322 asset deposit requirement, and had treated the Certificates as "specified assets" in calculating its compliance with the Part 322.2(b)(2) requirement that specified assets comprise at least 50 percent of the Bank's total asset pledge requirement.1

In response to a question from the examiners as to whether the Certificates qualified as specified assets under the regulations, the Bank submitted (1) a letter, dated May 21, 2008 from [---] (the “[---] Letter”), expressing his strong disagreement with the examiners’ views, and (2) a letter from the Bank's counsel, [---] explaining why, in their view, the Department "should accept" the Certificates as Specified Assets.


Under Part 322.2(a)(1), a "specified asset" is an obligation specified in Section 202-b(1) of the Banking Law. Insofar as relevant here, the list in the statute includes "obligations of the United States or any agency or instrumentality thereof, or guaranteed by the United States ...."

Attached to the Cathcart Memo was a copy of a Confidential Offering Memorandum, dated September 26, 2000, relating to the Certificates and showing Prudential Securities as the "Initial Purchaser".

According to that Offering Memorandum, the Certificates evidence beneficial ownership in a trust fund created by AMRESCO Independence Funding. It continues "The Trust fund consists primarily of the right to receive payments and other recoveries attributable to certain unguaranteed interests in a pool of loans which are partially guaranteed by the U.S. Small Business Administration." (emphasis added). (see also p. 65 of the Offering Circular, describing what the seller (Amresco) is conveying to the trust, and pp. 9 & 10, describing the assets of the trust and defining Guaranteed Interests and Unguaranteed Interests.)

It should also be noted that the cover page of the Offering Memorandum states that the SBA does not guaranty the Certificates, the beneficial ownership in the trust fund which they represent "or the Unguaranteed Interest in the SBA Loans that constitute the assets of such Trust Fund, nor doe the SBA have any direct or indirect obligation to the Trust Fund or the Certificate holders."

Thus in my view it is abundantly clear from the Offering Memorandum that in no sense are the Certificates supported by an SBA guaranty. Such Certificates are not obligations issued or guaranteed by the United States or by any agency or instrumentality thereof, and therefore are not obligations specified in Section 202-b(1) of the Banking Law or "specified assets" as described in Section 322.2(a)(1) of the Superintendent's Regulations.

Noted: MEG


1  I understand that after questions were raised in the course of the examination about the status of the Certificates under Part 322, the Bank substituted other assets as "specified assets" for purposes of meeting the asset deposit requirement.