New York Codes, Rules and Regulations › Title 3 - BANKING › Legal Interpretations › LI 9 - Miscellaneous-Other › Section LI 9.2 - Sale of certificates of deposit in new york by out-of-state savings and loan association

Current through Register Vol. 46, No. 28, July 10, 2024
[Statutory authority: Banking Law, §§131, 670 ] A
				  savings and loan association organized under the laws of the State of
				  California (the "S&L") asked whether it would be permissible for the
				  S&L to issue certificates of deposit in denominations of $100,000 to
				  individuals and investment houses within the State of New York under the
				  circumstances described in its letter. The S&L would deliver the
				  certificates to the New York commercial bank (the "Bank") with which it
				  currently maintains a commercial account and would issue a power of attorney to
				  the Bank, authorizing it, upon receipt of specific instructions, to countersign
				  one or more of the certificates of the S&L and to deliver the certificates,
				  as so countersigned, to the purchaser or purchasers thereof against payment
				  therefor. The funds received as payment for the certificates would be deposited
				  in the Bank to the credit of the S&L. The sale of the certificates would be
				  governed, in each case, by the terms of the purchase orders which would be
				  accepted in California. By executing the purchase orders, the purchasers of the
				  certificates would acknowledge that the Bank's actions--i.e., the completion of
				  delivery in New York on behalf of the S&L--would not give rise to any
				  rights against the Bank. The S&L would permit the certificates to be paid,
				  at maturity, from its commercial account with the Bank unless it exercised its
				  right, prior to maturity, to insist upon presentment and payment at its offices
				  in California.
Subdivision 1 of section 131  of the Banking Law provides, in relevant
				  part, as follows:
"No corporation, domestic or foreign, other than a national
				  bank or a federal reserve bank, unless expressly authorized by the laws of this
				  state, shall employ any part of its property, or be in any way interested in
				  any fund which shall be employed for the purpose of receiving deposits, making
				  discounts, receiving for transmission or transmitting money in any manner
				  whatsoever. . . "
Section 670  of the Banking Law reads as follows:
"Any person or corporation, who acts as agent or
				  representative of any mortgage, loan or investment corporation or building and
				  mutual loan corporation or association or co-operative savings and loan
				  association organized outside of this state, while such mortgage, loan or
				  investment corporation or building and mutual loan corporation or association
				  or co-operative savings and loan association shall not be authorized under a
				  license of the superintendent of banks to do business in this state, is guilty
				  of a misdemeanor."
The fact that the Bank would be authorized to countersign and
				  deliver the certificates in the name of the S&L, that it would be
				  authorized to accept payment therefor on behalf of the S&L, that the
				  payment would be retained in the S&L's account in New York and that the
				  Bank would not incur any liability to the purchasers of the certificates in its
				  own name indicate that the Bank would be acting solely as "agent" for the
				  S&L. As such, it would be accepting and delivering certificates in New York
				  on behalf of, or as the representative of, a foreign corporation. The foreign
				  corporation would thereby have an interest in a fund employed in the receipt of
				  deposits within the meaning of, and would otherwise be engaged, through its
				  agent, in the activities proscribed by, Section 131 (1)  of the Banking Law.
				  Finally, the Bank itself, as representative of the foreign S&L, would be
				  violating Section 670  of the Banking Law.
It was suggested, on behalf of the S&L, that Sections 131
				  and 670 were inapplicable and that the legality of the proposed transaction
				  should be determined solely by reference to Article 10 of the Banking Law (and
				  Section 408(1) thereof in particular). The language of the statutory provisions
				  cited, however, prohibits any such construction of the statute. Section 131(1),
				  for example, specifically states that it applies to any "corporation, domestic
				  or foreign ________ other than a national bank or a federal reserve bank" and
				  Section 670 specifically prohibits "any person or corporation" from acting "as
				  agent or representative of any ________ loan or investment corporation or
				  building and mutual loan corporation or association or co-operative savings and
				  loan association organized outside of this state, while such [entity] ________
				  shall not be authorized under a license of the superintendent of banks to do
				  business in this state________"
It was the Department's view that the proposed transaction
				  would require substantial restructuring if it were to comply with the Banking
				  Law. More precisely, all activities related to the certificates of deposit,
				  including receipt of payment for the certificates and signature of the
				  certificates, should be transacted outside of New York.
DATED: March 5, 1976