© CCH. All rights reserved. Originally published in the CCH Commodity Futures Law Reporter. Reposted by the CFTC with 

permission. Such reposting does not constitute or imply endorsement by the Commodity Futures Trading Commission of the 

accuracy of the reposted material or of any summaries thereof.

1

Commodity Futures Archive - Selected materials, CFTC-OETF Interpretative 

Letter No. 90-2. (Certain Hybrid Instruments Marketed and Sold by Branches 

or Agencies of Foreign Banks Subject to the Regulatory Supervision of the 

Banking Department of the State of New York.), ¶24,625, Commodity Futures 

Trading Commission, (Mar. 2, 1990)

¶24,625. Commodity Futures Trading Commission. Off-Exchange Task Force. March 2, 1990. Correspondence in full 

text.

Interpretations: Hybrid Instruments: Foreign Banks: N.Y. Regulation..– Since the regulatory supervision provided 

by the Banking Department to branches and agencies of foreign banks it licenses to conduct the business of banking in 

the state of New York is comparable to the regulatory supervision provided by U.S. federal banking authorities to the 

U.S. branches or agencies of foreign banks as contemplated by Reg. §34.2(a)(1)(vii), enforcement action would not be 

recommended to the Commission under Section 4c of the Commodity Exchange Act or Reg. §34.2 should any branch 

or agency of a foreign bank located within the state of N.Y. which is licensed, regulated, supervised and examined by 

the Banking Department market and sell hybrid instruments in compliance with the requirements of Part 34 except for 

the requirements of Reg. §34.2(a)(1)(vii) concerning the regulation, supervision or examination of such branches or 

agencies by U.S. federal banking authorities.

See ¶12,825, “Liabilities—Prohibitions” division, Volume 1.

This is in response to your letters of October 6, 1989 and January 11, 1990 concerning the application of the regulations 

of the Commodity Futures Trading Commission concerning certain hybrid instruments, 17 CFR Part 34 (54 F.R. 30684; 

July 21, 1989) to the issuance of such instruments by domestic, state-licensed branches or agencies of foreign banks. 

Specifically in this regard, you have requested that the applicability of the exemption from Commission regulation for 

certain hybrid instruments issued by a United States branch or agency of a foreign bank subject to federal bank 

regulator supervision as set forth in Commission Rule 34.2(a)(1)(vii) be extended to such branches or agencies when 

subject to regulatory supervision by the Banking Department of the State of New York (“Banking Department”).

In your letters you have represented that Article V of the New York banking law provides that a specific application and 

licensing procedure be followed before a foreign bank may commence the business of banking in the state of New 

York. Among the factors considered in making a decision to grant a license are the financial condition of the bank, the 

integrity of ownership, the quality of management and the business plan for the New York operation. The procedure 

also entails a check of the applicant's correspondent banks and business references and contact with the applicant's 

home country supervisory authorities. A copy of the application is made available to the Federal Reserve Board, the 

Comptroller of the Currency and the United States Department of State. Comments provided by these agencies are also 

taken into consideration in the decision-making process. Ultimately the New York State Banking Board considers the 

application and must grant its formal approval before a branch or agency may open for business.

You have indicated that once licensed by the state of New York, all branches and agencies of foreign banks are 

examined on a regular basis, supplemented by semi-annual visitations. Examinations are conducted by staff members of 

the Banking Department who frequently work with examiners from the Federal Reserve and the Federal Deposit 

Insurance Corporation during joint examinations of supervised institutions. The examination process entails review 

procedures and techniques similar to those that apply to Federal Reserve member banks and to FDIC insured banks. It 

includes an assessment of asset quality, reviews of internal controls and audit and the capability of management, and 

compliance with laws and regulations. Banking Department examiners also evaluate the adequacy of liquidity and the 

risk inherent in off-balance sheet activities. The examination includes an analysis of the depth, adequacy and diversity 

of funding sources and the quality and adequacy of earnings. In conducting these examinations, the Banking 

Department follows the uniform approach to the examination of branches and agencies of foreign banks developed 

through the Federal Financial Institutions Examinations Council. Thus, examination procedures and the overall report 

format are identical with those utilized by Federal Reserve bank regulators. All completed examination reports, along 

with a record of supervisory action, are forwarded to the Federal Reserve Bank of New York.

In addition, you have represented that the Foreign Commercial Banks Division of the Banking Department is 

responsible for all licensed branches and agencies and banks and trust companies with foreign ownership. While reports 

of examination are the primary basis for supervision, the condition of each institution is continously monitored through 

the regular review of quarterly financial reports and various other reports filed with Banking Department and the 

Federal regulatory authorities at frequent intervals.
© CCH. All rights reserved. Originally published in the CCH Commodity Futures Law Reporter. Reposted by the CFTC with 

permission. Such reposting does not constitute or imply endorsement by the Commodity Futures Trading Commission of the 

accuracy of the reposted material or of any summaries thereof.

2

Finally, you have noted that state-licensed branches and agencies are subject to the federal regulatory structure created 

by the International Banking Act, including the authorization of the Federal Reserve to act as the residual examining 

agency. You have also noted that the Department of the Treasur has authorized the Banking Department to enforce the 

Bank Secrecy Act in state-licensed, uninsured branches and agencies of foreign banks.

Based upon these representations, the staff is of the view that the regulatory supervision provided by the Banking 

Department to branches and agencies of foreign banks it licenses to conduct the business of banking in the state of New 

York is comparable to the regulatory supervision provided by U.S. federal banking authorities to the United States 

branches or agencies of foreign banks as contemplated by Commission Rule 34.2(a)(1)(ii). As a result, the staff will not 

recommend enforcement action to the Commission under Section 4c of the Commodity Exchange Act, 7 USC §6c, or 

Commission Rule 34.2 (54 F.R. 30684, 30692-3; July 21, 1989) should any branch or agency of a foreign bank located 

within the state of New York which is licensed, regulated, supervised and examined by the Banking Department as 

described above market and sell hybrid instruments in compliance with the requirements of 17 CFR Part 34 except for 

the requirements of Commission Rule 34.2(a)(1)(vii) concerning the regulation, supervision or examination of such 

branches or agencies by U.S. federal banking authorities.

This position does not excuse any such New York branch or agency of a foreign bank from complying with any 

otherwise applicable provisions of the Commodity Exchange Act. You should know that this positions based upon the 

facts and representations set forth in your October 6, 1989 and January 11, 1990 letters, and that any different, omitted 

or changed facts or conditions might require a different conclusion. It should also be noted that this position is that of 

the staff and is not binding upon the Commission.