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Banking Interpretations

NYBL 96(a)
NYBL 200

March 21, 2011


Dear Mr. [---]: 

This will respond to your letter of January 12th to Deputy Superintendent of Banks Regina Stone seeking approval under the Department's "wild card" authority (Banking Law Section 12 ‑ a ) for [---] acting through its New York branch (the "Branch"), to engage in the issuance of certain guarantees.

As we understand it, the Branch proposes, for a fee, to issue guarantees on behalf of certain of its customers. Each of the obligations being guaranteed would be a financial obligation of the customer to a third party. The amount of the Branch's obligations under each guaranty would be reasonably ascertainable and the issuance of each guaranty would be subject to an appropriate credit analysis.

Based on the information contained in your letter, it is our view that the powers of the Branch under the Banking Law are sufficient to enable it to engage in the proposed activity without the need to obtain wild card approval under Section 12-a.

Under the Banking Law, the powers of New York branches of foreign banks, such as the Branch, are generally comparable to the powers of New York banks. (See, e.g., August 11, 2010 memorandum from Assistant Counsel Sullivan to Deputy Superintendent Stone regarding proposed equity derivatives activities.) Banking Law Section 96 sets forth the general powers of New York banks. Among them is the power "[t]o execute and deliver such guaranties as may be incidental to carrying on the business of a bank or trust company." Banking Law Section 96(9).

The Department has interpreted this provision as permitting a New York bank, or a New York branch or agency of a foreign bank, to issue a guaranty (1) of the financial obligations of a customer where (2) the guaranty is limited to a definite term and amount, (3) the guaranty requires the party whose obligations are being guaranteed to reimburse the bank, and (4) the bank has no obligation to determine whether a default event has occurred, but must be obligated to pay upon the presentation of a proper demand. In addition to meeting the conditions above, the issuing bank would be expected to treat the guaranty as comparable to a loan to the account party for credit analysis and loan limit purposes. See December 14, 1984 letter from Derrick D. Cephas, Deputy Superintendent and Counsel and November 17, 1992 and September 2, 1993 letters from Michael A. Schussler, Assistant Counsel. (copies attached) Thus, provided that the proposed guaranty activities of the Branch meet the above criteria, they would be permissible under NY law.

It also appears that the proposed activities would be permissible for a federal branch of a foreign bank located in New York. Thus, prior approval of the Board of Governors of the Federal Reserve System would not be required under 12 U.S. Code Section 3105(b).

Under the International Banking Act of 1978, the powers of a federal branch are generally the same as those of a national bank at the same location. IBA, Sec. 4(b) There is no provision in the National Bank Act directly analogous to NYBL Section 96(9), and judicial decisions held that national banks could not generally guaranty the obligations of others. June 4, 1993 letter from William B. Glidden, Assistant Director, Bank Operations and Assets Division, OCC. The OCC has interpreted those decisions as permitting a national bank to give a guaranty if it had a "substantial interest" in the performance of the transaction involved. Ibid.

The substantial interest test was codified in Section 7.1017 of the OCC's regulations. In 2007, the OCC amended Section 7.1017 to add a new subsection (b), which provides that, in addition to issuing guarantees that meet the specific tests in the prior rule, national banks may "guarantee financial obligations of a customer ... ,  provided the amount of the bank's obligation is reasonably ascertainable and otherwise consistent with applicable law." Thus it appears that the proposed activities would be permissible for a national bank, and by extension for a federal branch of a foreign bank located in New York.

We trust that the foregoing is responsive to your inquiry. If you have any additional questions require further clarification, please contact the undersigned.

Yours sincerely,

Sam L. Abram
Assistant Counsel


Department of Financial Services


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