Banking Interpretations

NYSBL 2(2); 141; 142

February 16, 2006


Re: Bank Holding Company

Dear Mr. [---]:

Your letter of May 18, 2004 was recently forwarded to me for a response. We apologize for the delay in responding.

The Banking Department has determined that your client, [---] is required to register as a bank holding company under Section 142 of the New York State Banking Law (the "Banking Law") as a result of its ownership of two limited purpose trust companies.

As described in your letter, [---] conducts limited custodial operations through its New York state-chartered limited purpose trust company subsidiary, [---] the ("NY Company"). The NY Company is empowered only "to exercise the powers conferred by Section 100 of the NYBL,” and is expressly precluded from "commercial banking activities." The NY Company accepts no deposits and is not FDIC insured.  [---] also owns a national bank with a charter limited to fiduciary powers, [---], National Association (the "Federal Company"). The Federal Company provides personal trust and estate administration, and related services to high net worth clients of [---]'s private clients business. It does not accept deposits or make loans and it is not FDIC insured. Its principal office is located in New York City.

Section 142 of Article III-A of the Banking Law requires Banking Board approval for any action to be taken that causes any company to become a bank holding company.

The relevant part of Section 141(3) of the Banking Law defines a "bank holding company" as any company which (a) directly or indirectly, or through a subsidiary or subsidiaries, owns, controls, or holds with power to vote ten per centum or more of the voting stock of each of two or more banking institutions, or (b) controls in any manner the election of a majority of the directors of each of two or more banking institutions. "Banking institution" is defined in Section 141(1) of the Banking Law to mean a bank, a trust company or a national banking association, the principal office of which institution is located in this state.

The term "trust company" is defined in Section 2(2) of the Banking Law which states that "when used in this chapter, unless a different meaning appears from the context, means any corporation or limited liability trust company organized under or subject to the provisions of article three of this chapter, having, in addition to the other powers specified in such article, the fiduciary powers specified therein."

In your letter you argue that [---] is not required to register as a bank holding company because it does not control two or more banking institutions. In your view, the NY Company is not a banking institution for purposes of Article III-A because it is not a "bank," a "trust company" or a national banking association. You argue that the plain reading of the definition of "trust company" in Section 2(2) of the Banking Law requires that a trust company have the powers specified in Article III, and in addition, that it possess the fiduciary powers specified in Article III. You state that, as a limited purpose trust company, the NY Company only possesses limited powers and is not authorized to engage in traditional banking activities.

You note that the Banking Law's definition of "trust company" does include a limited liability trust company. However, you argue that the fact that the term "limited liability trust company," was added is indicative that the definition of trust company was only intended to include a certain subset of limited purpose trust companies (i.e. limited liability trust companies), as opposed to all limited purpose trust companies. We respectfully disagree with your reasoning. We believe that the inclusion of the phrase "limited liability trust company" could stand equally firmly for the proposition that limited purpose trust companies (which include as a subset limited liability trust companies, as distinguished from corporate form trust companies), were intended to be included in the definition of trust company.

We acknowledge that the original definition of "trust company" in the Banking Law was drafted when the concept of a limited purpose trust company did not exist. As you note, the only concept of a trust company at the time was that of a bank with all the normal banking powers plus fiduciary powers. A limited purpose trust company has the fiduciary powers listed in Section 100 of Article 3, it does not accept deposits and it is not FDIC insured. Arguably, the definition of trust company should have been amended when the Department began to charter "limited purpose" trust companies to delete the phrase "in addition to the other powers specified in such article." However, the Department has and continues to view a limited purpose trust company as a form of trust company formed under Article III of the Banking Law. There is no separate definition in the Banking Law for a limited purpose trust company.

In 1997 when the law was amended to allow trust companies to be formed as limited liability companies, rather than as corporations, the definition of trust company was amended to include limited liability trust companies as a type of trust company. Both limited liability trust companies and limited purpose trust companies are included in the definition of "trust company" contained in Section 2(2) of the Banking Law. Also, note that the wording "in addition to the other powers specified in such article" is not correct in the context of limited liability trust companies because only limited purpose trust companies can organize as limited liability companies. Therefore, this further supports the suggestion that this wording probably should have been deleted when the definition was amended to include limited liability trust companies, but possibly was not done so due to an oversight.

The Department's position is supported by the legislative history concerning the amendment to the definition of trust company to include limited liability trust companies. The legislative history indicates the following:

"This bill, which is very similar to the provisions of Chapter 637 of 1995, would allow certain limited purpose trust companies to organize themselves as limited liability trust companies (LLTC). Currently, article 15 of the Banking Law only allows trust companies to be established as corporations. This bill would offer the LLTC option only to those trust companies which do not receive deposits or share accounts from the general public, and which have been exempted by the Banking Board from the deposit insurance requirements of Section 32 of the Banking Law. (emphasis added).

Currently, trust companies can be organized for limited purposes, such as providing clearing, custodial, investment management and similar services. These limited purpose trust companies differ from regular trust companies and banks in that they do not accept deposits from the general public, nor are they insured by the Federal Deposit Insurance Corporation (FDIC)....

In authorizing limited liability trust companies, this bill ensures that these entities are subject to the same banking regulatory provisions and structure which currently apply to corporate-form trust companies. This is accomplished by amending the definition of "trust company" in the Banking Law to include both corporate-form trust Companies and limited liability trust companies."

(See McKinney's 1997 Session Laws of New York; New York State Legislative Annual -1997)

The Department has determined that NY Company is a "trust company" pursuant to Section 2(2) and therefore it is a banking institution for purposes of Article III-A. The Federal Company is clearly a national banking association and has its principal office in New York State. Therefore, due to its ownership of two banking institutions, [---] must submit an application seeking Banking Board approval to be a holding company pursuant to Section 142 of the Banking Law.


Sharon Cherry
Associate Attorney