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

[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