Banking Interpretations

NYSBL 200; 202-a
General Regulations Part 81

New York State Banking Department

To:        Supervising Bank Examiner Aloysius
             FWB Division

From:    Associate Attorney Prendergast
             Legal Division

Date:     February 16, 2007

Subject: [---] New York Agency - Inquiry on Commercial Paper


Whether the New York state licensed agency of [---] has the authority to issue commercial paper, floating rate notes and similar instruments.


Under New York law, the New York agency does, in certain circumstances, have the authority to issue commercial paper, floating rate notes or other similar short term debt instruments. However, doing so may cause it to be operating as an unlicensed branch for Federal Reserve purposes. In any event, the agency should be urged to consult with U.S. counsel regarding potential U.S. regulatory and security compliance issues.


[---] has a licensed New York agency office located [---] New York, NY [---].


The agency has inquired if it has the authority to issue commercial paper, floating rate notes or other similar instruments. (By way of background, commercial paper is an unsecured, short-term debt instrument that usually has a maturity not longer than 270 days. Floating rate notes are notes with a variable interest rate, usually tied to a certain money market index.) A state-licensed agency generally is permitted to do whatever a state-chartered commercial bank can do, but it does not have the authority to take deposits. The question then becomes whether or not issuing the commercial paper and similar instruments would be considered the equivalent to taking deposits. Without actually seeing the commercial paper or notes that the agency proposes to issue, it does seem that they would be viewed as taking deposits under New York state law. However, pursuant to Part 81 of the GRBB there is an exception which allows a state licensed agency to issue large denomination obligations in certain circumstances. Part 81 allows a state licensed foreign agency to issue large denomination obligations (principal amount of not less than $100,000) to any foreign or domestic corporation, partnership, trust, unincorporated association, joint-stock association or similar association. Therefore, if the commercial paper or notes fit into this exception, the agency can issue them under state law. However, the Federal Reserve does not provide for any such exception. Be advised that the FRB will view this as taking deposits and accordingly, may consider the agency to be acting as an unlicensed branch if it does issue the commercial paper or notes.

I note that this memo is limited to the legal issues presented and that there may be supervisory concerns with any offering made by the agency.

Further, if the agency does go forward with an offering, the agency will need to provide sufficient disclosures to the buyers. As a supervisory matter, we strongly suggest that the agency consult with counsel in the U.S. to ensure compliance with regulatory matters and any/all securities laws and regulations that may apply.