Skip to Content

Adopted Regulations
Assessment of Public Comments regarding Amendments to Part 322 of the Superintendent’s Regulations

The Notice of Proposed Rulemaking was published on September 18, 2002 and the Department received ten (10) public comments regarding the proposed amendments.  The comments were received from five (5) trade associations, two (2) foreign banking supervisory authorities, and three (3) foreign banking institutions.  Most of the commenters supported the overall thrust of the proposal in substantially reducing the pledge burden.  However, there were four major areas in which the commenters suggested that greater relief should be granted.

Eight commenters noted that they believed the restrictions on pledging “same-country issuer” securities are too burdensome.  It was argued that securities should be allowed or disallowed based on their ratings and not their places of origin.  It was also argued that same-country issuers offer banks a readily available and inexpensive source of liquidity and are an important component in managing the overall risk profile, and that excluding such assets as eligible pledge assets would force banks to reorganize their pledge regimes.  Several commenters suggested that highly rated same-country-issuer securities should be permitted to comprise up to fifty percent of the required pledge.

The Department has seriously considered this issue and the comments received, and the Department believes that it is most prudent at this time to adopt a full prohibition on same-country securities, rather than attempting to distinguish between countries.  A minor change was made to the language in the proposed regulation to clarify that the prohibition against same-country issuer obligations includes obligations that are guaranteed by an entity from the same country.  The same-country issuer prohibition reflects the Department’s actual experience with several situations that have arisen when a particular country has experienced economic problems that affect all or most banks from that country.  It is problematic for the Department to advise a bank that is experiencing financial difficulties stemming from a home-country downturn that obligations from same-country issuers must be replaced, since the value of the obligations frequently are correlated with the same country risk.  In practice, it has proven to be the most difficult time for distressed institutions to obtain replacement securities.  The effect of the Department’s decision to disallow same-country securities at a particular point in time may also signal negative views, which could further complicate a deteriorating country situation. Thus, the Department believes that it is preferable to address this issue prophylactically in the regulation, without distinguishing between countries.  In addition, the Department believes that, in view of the overall substantial reduction in the amount of assets required to be pledged by all institutions, the hardship caused by the elimination of a particular type of asset as eligible for pledge is counterbalanced by the otherwise wider pool of assets now available for all institutions as well as the reduction in the absolute amount of the required pledge.

Six commenters noted that the $400 million cap on the required pledge amount for well-rated institutions was too high and afforded very few institutions real relief.  Most suggested that the cap should be set at no more than $50 – 100 million.  The Department believes that $400 million is an appropriate cap at this time.  The institutions that would immediately benefit from a lower cap will have already experienced up to an eighty percent reduction in the required current asset pledge by virtue of the revised regulation. Those larger institutions which continue to grow in size will eventually begin to benefit from the cap limit.

 Five commenters remarked that the “well-rated” criterion set forth in new section 322.7 of the regulation should be more objective and/or less burdensome.  Some suggested that the determination of whether an institution is well-rated is too subjective, and that too much is left to the Superintendent’s discretion.  They also suggested that the standards complicate an institution’s regulatory burden.  It was also suggested that the “well-rated” criterion should not reference a parent bank’s capital levels, as parent bank capital should be a matter exclusively of home country regulatory concern.

The Department has determined to leave the standards for a “well-rated” determination as they were in the proposed regulation.  One technical amendment was made in the description of the “Strength of Support Assessment” or “SOSA” rating to clarify that this rating is issued by the federal banking agencies, not only the Federal Reserve Board.  The Department believes that the flexibility, on balance, will assist rather than disadvantage foreign banks, as the Superintendent will have the flexibility to consider a variety of factors, even though the foreign bank may have weaknesses in certain areas.

One commenter noted that all institutions should be allowed to pledge investment grade assets.  The Department believes that, particularly in view of the reduction in the required amount of asset pledge, the requirement that pledged assets be highly rated should not be overly burdensome.  The relief that is granted for well-rated institutions to satisfy a portion of their pledge with investment grade assets reflects a risk-focused approach to the asset pledge requirement.

One commenter suggested that securities lending agreements be expressly listed in the regulation as “qualified financial contracts”, the liabilities arising out of which would be excludable from the asset pledge calculation.  The Department believes that it is more appropriate to reference the specific Banking Law definition of “qualified financial contracts”, as was done in the proposed regulation, rather than attempt to enumerate every instrument that may constitute a “qualified financial contract” in the regulation.

One commenter noted that the way in which section 322.2 was drafted in the proposed regulation may have led to an unintended consequence of suggesting that certain assets eligible for pledge that are not currently subject to rating requirements, would now be subject to rating requirements.

The Department agrees that the drafting in the proposal led to an unintended broad imposition of a rating requirement condition.  Accordingly, the Department has made a number of technical clean-up amendments to section 322.2 to cause the rating requirement condition to read more narrowly and accurately.  The Department also clarified and simplified the phrasing in several sections of section 322.2, although the meaning and effect of the provisions has remained unchanged.  One such clarification was to more clearly reference the Asset Pledge List that will be made available to the public and posted on the Banking Department’s website, as well as to make clear that the Asset Pledge List will enumerate conditions and limitations associated with pledging of assets on the list.

One commenter raised a question on the phrasing employed in the proposed regulation, which the Department answered by contacting the commenter directly.  No substantive comment on the regulation remained after the question was answered.  One commenter merely commented to the effect that the proposed regulation would not affect his institution since the foreign bank maintained only a representative office in New York.

Department of Financial Services


DFS Facebook page

Follow NYDFS on Twitter


Sign up online or download and mail in your application.