Investment in Subsidiary

UNOFFICIAL COPY: 3 NYCRR - Part 14 -- Investments in Corporations by Banks and Trust Companies

(Statutory Authority: Banking Law, §§ 14[1], 97[4-a])

14.1 Purpose and Scope
14.2 Limitations
14.3 Investment procedures for operating subsidiaries and Edge Act subsidiaries
14.4 Investment procedures for other stock investments

3 NYCRR § 14.1 -- Purpose and Scope.

Section 97(4-a) of the Banking Law authorizes the superintendent to adopt regulations to permit banks and trust companies to own or make investments in the stock and other equity of subsidiary corporations engaged in the transaction of any business in which a bank or trust company may engage directly (“operating subsidiaries”) and corporations organized pursuant to section 25(a) of the Federal Reserve Act (“Edge Act subsidiaries”). Banks and trust companies may also make investments in the capital stock (which for the purposes of this Part shall be deemed to include contributions to capital surplus) of other corporations if specifically authorized by the superintendent pursuant to section 97(5) of the Banking Law. This Part implements the superintendent's authority to authorize investments in operating and Edge Act subsidiaries pursuant to section 97(4-a) and to establish the procedures to make applications to invest in the capital stock of other corporations pursuant to section 97(5).

3 NYCRR § 14.2 -- Limitations.

The investment procedures of section 14.3 of this Part are limited to corporations of which a bank or trust company is or will become the owner of at least a majority of the voting stock and which are controlled by no other person.

3 NYCRR § 14.3 -- Investment Procedures for Operating Subsidiaries and Edge Act Subsidiaries.

(a) Except as provided in subdivisions (b) and (c) of this section, a bank or trust company which seeks to acquire, establish, make an additional investment (exceeding the lesser of one percent of the bank or trust company's capital stock, surplus fund and undivided profits or five million dollars) in, or perform new activities in an operating subsidiary, or acquire, establish, or make an additional investment in an Edge Act subsidiary, shall submit a notice to the superintendent containing a detailed description of the applicant's investment in the subsidiary (including, but not limited to, the purchase price, whether any shares are to be purchased from officers or executive officers of the bank or trust company, and the identity of any other investors), the activities or proposed activities of the subsidiary, the location of the subsidiary's offices and records, the organizational structure and management of the subsidiary, the relations between the applicant and the subsidiary (including, but not limited to, whether the bank or trust company intends to lend money to or guaranty the obligations of the subsidiary), and any other information the superintendent may request. The investment may be made or the new activity performed 30 days after the superintendent's receipt of the notice unless within that 30-day period the superintendent notifies the bank or trust company in writing that:

it may make the investment or perform the new activity earlier;
it may not make the investment or perform the new activity; or
the superintendent requires additional time or information. In the event the superintendent notifies the bank or trust company that he or she requires additional time or information, the bank or trust company may not make the investment or perform the new activity prior to receiving written approval from the superintendent.

(b) A bank or trust company which establishes or makes an additional investment in a subsidiary engaged in, or to be formed to engage in, factoring, personal property leasing, or, in the case of investments in excess of five thousand dollars, the ownership or operation of real or personal property acquired through foreclosure or in settlement or in reduction of debts or obligations to such bank or trust company which were previously contracted in the regular course of its business, or additional investments in operating subsidiaries not reportable under subdivision (a) of this section, shall notify the superintendent within 30 days after the investment is made. The notice shall provide the name of the subsidiary, the location of its head office, and the amount and form of the investment. The bank or trust company also shall provide a certification that the investment was made in conformity with the terms of this Part. No notification shall be required with respect to investments in a subsidiary which shall own or operate real property for use as a bank premises.

is “adequately capitalized” or “well capitalized” as those terms are defined in title 12, Code of Federal Regulations,* part 325;
at its immediately prior examination, had a composite CAMELS rating of 1 (strong) or 2 (satisfactory) under the Uniform Financial Institution Rating System (UFIRS) as those terms are defined in the UFIRS notice in the December 19, 1996 Federal Register* (61 Fed. Reg. 67021); and
is currently not subject to a cease and desist order, a consent order, or a formal written agreement, issued by the superintendent, the Federal Deposit Insurance Corporation or any other Federal banking agency; may acquire or establish an operating subsidiary, make an additional investment in an existing operating subsidiary or perform a new activity in an existing operating subsidiary, by providing the superintendent with written notice within 30 days after acquiring or establishing the subsidiary, making the additional investment or commencing the activity, provided that the activity is listed in subdivision (d) of this section. The written notice must contain a detailed description of the applicant's investment in the subsidiary (including, but not limited to, the purchase price, whether any shares are to be purchased from officers or executive officers of the bank or trust company, and the identity of any other investors), the activities or proposed activities of the subsidiary, the location of the subsidiary's offices and records, the organizational structure and management of the subsidiary, the relations between the applicant and the subsidiary (including, but not limited to, whether the bank or trust company intends to lend money to or guarantee the obligations of the subsidiary), a representation that the activity will be conducted in accordance with the terms of this Part, and any other information that the superintendent may request. A bank or trust company providing notice pursuant to this subdivision is deemed to have agreed that the subsidiary will conduct the activity in a manner consistent with [New York State Department of Financial Services] statutes, regulations and supervisory guidance.

(d) The following activities qualify for the preapproved notice procedures under subdivision (c) of this section:

business services for the bank or trust company and its affiliates: furnishing services for the internal operations of the bank or trust company, or its affiliates, including accounting, auditing, appraising, advertising and public relations, data processing and data transmission services, databases or facilities;
financial advice and consulting for the bank or its affiliates;
selling money orders, savings bonds or travelers checks;
management consulting, operational advice and specialized services for other depository institutions;
courier services between financial institutions;
providing check guaranty and verification services;
data processing and warehousing products, services, and related activities, included associated equipment and technology, for the operating subsidiary, its parent bank and their affiliates;
acting as investment or financial advisor (not involving the exercise of investment discretion), or providing financial counseling, including:
1. serving as the advisory company for a mortgage or real estate investment trust;
2. furnishing general economic information and advice, general economic statistical forecasting services and industry studies;
3. providing financial advice to state or local governments or foreign governments with respect to issuance of securities;
4. providing tax planning and preparation; and
5. providing consumer financial counseling;
providing financial and transactional advice to customers and assisting customers in structuring, arranging and executing various financial transactions (provided that the bank and its affiliates do not participate as a principal), including mergers, acquisitions, divestitures, joint ventures, leveraged buyouts, recapitalizations, capital structurings and financial transactions (including private and public financings and loan syndications); conducting financial feasibility studies; and arranging commercial real estate equity financing;
investment advice (not involving the exercise of investment discretion) on futures and options on futures;
making, purchasing, selling, servicing, or warehousing loans or other extensions of credit, or interests therein, for the subsidiary's account, or for the account of others, including consumer loans, credit card loans, commercial loans, residential mortgage loans, and commercial mortgage loans; provided, however, that the preapproved notice procedure set forth in subdivision (c) of this section is not available if the notice involves the direct or indirect acquisition by the bank of any low quality asset from an affiliate in connection with a transaction subject to this section; for purposes of this paragraph, the terms low quality asset and affiliate have the same meaning as provided in section 23A of the Federal Reserve Act (title 12, United States Code,*371(c); and
owning, holding, and managing all or part of the parent bank's investment securities portfolio.

3 NYCRR - § 14.4 -- Investment Procedures for Other Stock Investments.

(a) A bank or trust company which seeks to acquire, establish, make an additional investment in, or perform new activities in any other corporation (whether or not the bank or trust company will own a majority of its stock) shall submit an application to the superintendent containing a detailed description of the applicant's investment (including, but not limited to, the purchase price, whether any shares are to be purchased from officers or executive officers of the bank or trust company, and the identity of any other investors), the activities or proposed activities of the corporation, the location of the corporation's offices and records, the organizational structure and management of the corporation, the relations between the applicant and the corporation (including, but not limited to, whether the bank or trust company intends to lend money to or guaranty the obligations of the corporation), and any other information the superintendent may request. The investment may be made or the new activity performed only upon receipt of superintendent approval.

(b) A bank or trust company that seeks to make an additional investment in a corporation, the initial investment in which was approved by the superintendent pursuant to subdivision (a) of this section, shall be required to follow only the notice procedures of section 14.3(a) of this Part.

Investment in Subsidiary

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