Relates to bank holding companies; simplifies and streamlines the application of the bank holding company provisions; repealer

Summary of provisions

Section 1 of the bill would amend BL § 141 to make various amendments to various definitions, including: (1) an amendment to the definition of "banking institution," as used in Article III-A of the BL, to remove national banks from the definition; and (2) an amendment to the defi- nition of "bank holding company" from a company that owns or controls two or more banking institutions to a company that owns or controls one or more banking institutions. This section also makes certain technical and conforming amendments.

Section 2 of the bill would amend Article III-A of the Banking Law concerning application requirements to become a bank holding company. Specifically, subdivisions (1) and (2) of BL § 142, which currently contain the approval requirements and application standards to become a bank holding company, would be deleted in view of the fact that applica- tions to become a New York bank holding company would no longer be required.

Section 3 of the bill would amend BL § 142-a, relating to limitations on acquisitions of newly chartered banking institutions by bank holding companies. Specifically, section 142-a(2) would be repealed as unneces- sary. Section 142-a(3) would be renumbered as Section 142-a(2) and amended to retain the former (i.e. two-bank) definition of "bank holding company." The reason for not modifying the definition of "bank holding company" in this section is so that the potential home office protection for the principal office of subsidiaries of one-bank holding companies will remain.

Section 4 of the bill would make technical amendments to BL § 143, which contains provisions concerning limitations on loans to officers and directors of holding companies as well as director/officer interlock provisions. References to federal savings associations would be updated. Language concerning interlocks that were grandfathered on the date of the original effective date of the provision (May 1, 1973) would be

deleted as no longer necessary. Conforming amendments to the definition of "bank holding company" would also be made.

Section 5 of the bill would make technical amendments to BL § 143-a, which relates to the acquisition of all of the stock of a banking corpo- ration that does not result in a change in control. The current language would be broadened to recognize that, in certain cases, both holding companies and banking institutions may have non-corporate structures. References to now-deleted requirements of BL . 142 would be deleted.

Section 6 of the bill would make conforming technical amendments to BL 143-b, which relates to acquisition of control of a banking institution by a person or company and related application requirements. Existing references to deleted requirements of BL § 142 would be removed. Language previously in BL § 142(2) detailing situations not constituting "control" and therefore not requiring an application would be moved to BL § 143-b(4).

Section 7 of the bill would repeal BL § 144, which relates to the requirement for a New York bank holding company to register with the Banking Department within 180 days after becoming a bank holding compa- ny.

Sections 8 and 9 of the bill would make conforming amendments to the definition of "bank holding company" as used in BL §§ 39 and 100 concerning orders issued by the Superintendent and concerning common trust funds.

Section 10 of the bill would make a conforming amendment to the defi- nition of "bank holding company" as used in BL § 105 concerning branch- ing. The change would retain the prior definition of "bank holding company" (i.e. two-bank company) in order to retain the status quo with respect to home office protection for principal offices of certain bank- ing institutions that are subsidiaries of one-bank bank holding compa- nies, which are deemed small enough to need home office protection.

Sections 11 and 12 of the bill would make a conforming amendment to the definition of "bank holding company" as used in BL §§ 240 and 396 concerning branching, similar to BL § 105.

Sections 13, 17, 19-21 of the bill would make technical and conforming amendments to various sections of the BL with regard to director/officer interlocks.

Sections 14 and 15 of the bill would make conforming amendments-to BL 136(5) and 136-a(2) to delete a reference to the application and fee required in connection with a merger application submitted pursuant to BL § 136-b(2), which would be repealed.

Section 16 of the bill would make technical amendments to BL § 136-b, which relates to the Superintendent's approval of a merger or acquisi- tion by a state bank or trust company of a national banking association.

Section 18 of the bill would make a technical conforming amendment to BL § 225-b to change an existing reference to BL § 143(3) to BL § 143(2).

Section 22 of the bill would make a technical conforming amendment to BL § 601(1) to delete a reference to the application and fee required in connection with a merger or purchase and assumption transaction applica- tion submitted pursuant to BL § 601-b (2), which would be repealed.

Section 23 of the bill would repeal BL § 601-b(2), which describes tran- sactions involving a merger or purchase and assumption transaction involving a banking institution subsidiary of a bank holding company in which the Superintendent's approval is not required because there is a concomitant bank holding company application pursuant to BL § 142 being acted upon by the Banking Board. This section would no longer have rele- vance as the bank holding company application requirements of BL § 142 would be removed.

Section 24 of the bill would amend BL § 222, the definitional section in the New York Interstate Branching Act (Article V-C), by adding "banking institution" as a defined term. The term is used in the definition of the term "acquisition transaction" in Article V-C, and also in new amendments to BL § 223-a that are part of this bill.

Section 25 of the bill would amend BL § 223-a. This provision, in the New York Interstate Branching Act (Article V-C) prohibits, with certain exceptions, an out-of-state bank from acquiring a New York bank that has been chartered for less than five years if the New York bank charter would terminate as a result of the transaction. Like BL § 142-a(2), which would be repealed as part of this bill, BL § 223-a is designed to prohibit an out-of-state bank from circumventing the de novo branching restrictions by acquisition of a banking institution. The term "New York bank" would be replaced in § 223-a with the term "banking institution," so the prohibited acquisitions would include acquisitions of federally chartered banks as well as New York-state chartered banking insti- tutions.

Section 26 of the bill would make a technical amendment to BL § 4002(a), which requires fingerprints of applicants in connection with various applications under the BL. The amendment would remove the reference to bank holding company applications pursuant to BL §142.

Section 27 of the bill would provide that any registration of a bank holding company in effect on the date prior to the effective date of this act shall expire on the effective date of this act.

Section 28 of the bill would provide an immediate effective date.

Existing law

The BL currently defines "banking institution" for purposes of Article III-A to include New York state-chartered banking institutions and national banks having their principal offices in New York State.

BL § 141(2) currently defines "company" for purposes of Article III-A to include corporations and other entities organized under the laws of the State of New York or doing business in the State of New York, or any individual residing or doing business in the State of New York, or combinations thereof.

BL § 141(3) currently defines "bank holding company" as a company (including a natural person or group of persons) that owns or controls two banking institutions (as that term is currently defined in BL 141(1)). "Bank holding company" currently also would include a parent banking institution which itself owns a subsidiary banking institution.

BL § 141 (4) currently defines "successor" for purposes of Article III-A.

BL § 141(5) currently defines "subsidiary" under a multi-pronged defi- nition, including, in general terms: (a) any company ten percent of whose voting stock is owned or controlled directly or indirectly by a bank holding company the election of a majority of whose directors is controlled in any manner by a bank holding company.

BL § 141(7) currently defines "out-of-state bank holding company," and tracks the current federal definition of a bank holding company whose home state is a state other than New York.

BL § 142(1) currently provides that it is unlawful without prior approval of the Banking Board for any action to be taken that causes a company to become a bank holding company, or for a bank holding company to acquire another banking institution or otherwise expand. BL § 142(1) also contains the basic requirements for an application to become a bank holding company as well as the factors to be taken into account by the Banking Board in approving an application.

BL § 142(2) enumerates several situations that do not require the Bank- ing Board's approval - either under BL § 142 to become a holding company or under BL § 143-b to acquire control- because they are deemed not to constitute the acquisition of control (e.g. acquisition of stock in a fiduciary capacity; stock acquired in satisfaction of a debt; stock dividends, stock splits or additional stock acquired by a bank holding company or its subsidiary; or stock acquired by a legal representative). BL § 142(3) contains restrictions on loans to executive officers and directors of a bank holding company, as well as restrictions on loans from bank subsidiaries of holding companies for the purpose of purchas- ing holding company stock.

BL § 142-a contains certain prohibitions on bank holding companies acquiring banking institutions that have been chartered less than 5 years when such an acquisition would violate another banking insti- tution's home office protection, or when such an acquisition would circumvent restrictions on de novo branching.

BL § 143 contains restrictions on loans to executive officers and direc- tors of bank holding companies, as well as restrictions on interlocks of directors and officers of bank holding companies with other banking institutions.

BL § 143-a contains the application requirements for companies seeking to acquire all the capital stock of a New York-chartered banking insti- tution, when such acquisition does not involve a change of control.

BL § 143-b contains the application requirements and factors considered by the Banking Board in the case of persons or entities seeking to acquire control of a New York-chartered banking institution. It also defines "control" for purposes of that section and sets forth certain situations when an application for control is not required.

BL § 144 contains provisions requiring bank holding companies to regis- ter with the Banking Department.

BL § 39 contains the authority permitting the Superintendent to issue orders against banking organizations, bank holding companies and other entities chartered, licensed, registered or authorized under the BL.

BL § 100-c relates to the establishment of common trust funds by banks and trust companies.

BL § 105 contains provisions relating to the authority of banks and trust companies to establish branches.

BL §§ 240 and 396 contain provisions relating to the authority of savings banks and savings and loan associations to establish branches.

BL § 130(3) contains provisions relating to restrictions on executive officer and director interlocks between banks and trust companies, with other banking institutions and bank holding companies.

BL § 136 and 136-a(2) contain application requirements for the conver- sion, merger or purchase of assets of a national bank into or by a state bank, and currently waives the fee requirements for such applications when they are submitted together with a BL § 142 bank holding company application.

BL § 136-b(2) relates to applications by banks and trust companies to merge with or purchase the assets of a national banking organization. It provides that the Superintendent's approval is not required for such transactions in situations where there is a concomitant application for approval of a New York bank holding company pursuant to BL § 142.

BL §§ 209, 247, 399 and 399-a contain provisions relating to restrictions on executive officer and director interlocks between foreign banking corporations, savings banks, savings and loan associ- ations and thrift institutions with other banking institutions and bank holding companies.

BL § 222 is the definitional section in Article V -C, known as the New York Interstate Branching Act. The term "banking institution" is not currently defined for purposes of Article V-C.

BL § 223-a currently prohibits, with certain exceptions, an interstate acquisition transaction if the effect of the transaction is to terminate the existence of a New York state chartered banking institution that has been chartered for less than five years. The purpose of this provision is to prohibit acquisition transactions designed to circumvent the de novo branching restrictions in New York's interstate Branching Act.

BL § 225 contains references to several other sections of the BL that are made applicable to branches in New York of out-of-state banks.

BL § 601 sets forth application requirements for mergers by New York banking institutions and other banking institutions.

BL § 601-b contains provisions relating to factors to be considered and steps to be taken in approval of applications by New York state-char- tered banking institutions for mergers and purchase and assumption tran- sactions. BL § 601-b(2) provides that the Superintendent's approval is not required for transactions in which there is a concomitant bank hold- ing company application pursuant to BL § 142 being acted upon by the Banking Board.

BL § 4002 contains the provisions relating to the requirement for appli- cants making various types of applications to the Banking Department, including an application for approval to become a bank holding company, to provide fingerprints in connection with such applications.

Legislative history

This is a new bill.

Statement in support

This bill would amend Article III-A of the BL with respect to New York bank holding companies to streamline New York State's banking regulatory scheme for the regulation and supervision of persons who control banking institutions.

The Article currently requires prior approval by the New York State Banking Board of a person or company that will become a "bank holding company" as defined in the Article. In general terms, this is a person or company that would own or control two or more banking institutions (currently defined to include New York State-chartered banks, trust companies and savings institutions, as well as national banks). This concept of a bank holding company as a two-bank company dates back several decades to when a federal bank holding company was defined as a company owning or controlling 2 banks, and exempting companies owning one bank from the definition. This policy changed in 1970 at the federal level, when one-bank holding companies became subject to the approval

requirements and restrictions of the Federal Bank Holding Company Act, which was originally enacted in 1956. No corresponding change was ever made to New York's Bank Holding Company Act.

In addition, the scope of the Federal Bank Holding Company Act, as well as the supervisory mandate of the Federal Reserve under the Federal Bank Holding Company Act, is much broader than the Banking Department's under New York's Bank Holding Company Act, in that the Federal Reserve has authority to impose capital and other safety and soundness requirements on bank holding companies and to limit non-bank activities conducted by such holding companies. As a result, the focus of New York's Bank Hold- ing Company Act is far narrower, with its main focus being on aggre- gation of bank assets in New York State.

Given the historical development of the bank regulatory system at the federal level, it has become apparent that the registration and super- vision of holding companies at the state level adds very little if anything to the supervisory framework. Any company that would be a New York bank holding company would be registered and supervised as a feder- al bank holding company. Also, any individual that owned or controlled a bank, while not falling within the definition of a "company" for purposes of the Federal Bank Holding Company Act, would require approval at both the state and federal levels as a control party. Finally, the requirements under Article III-A have led to some unusual applications being presented to the Banking Board; for example, for approval of a holding company for two national banks with their principal offices in New York State. In such a situation, the Department has no regulatory jurisdiction over the national banks themselves, and the role of approv- ing their holding company as a New York bank holding company is anachronistic. For this reason, the bill eliminates the registration requirement.

Nonetheless, there is value to retaining the concept of a "bank holding company" under New York Banking Law for banking institutions supervised by the Banking Department. Consequently, the bill would revise the definition of "bank holding company" to cover a person or company that owns or controls one or more New York chartered banks, trust companies, savings bank or savings and loan associations. Ownership or control of a national bank would no longer result in New York bank holding company status. Likewise, designation as a holding company would occur as long as a person or company owned at least one State-chartered banking insti- tution. Thus, the "holding company" concept would remain simply as a parent/owner concept. In addition to formal approval not being required, formal registration of the holding company would no longer be required as currently provided in BL § 144. This will result in cost savings both for bank holding companies that hold multiple New York banking insti- tutions and for the Department, without a decrease in the Department's capability to oversee control persons of banks it supervises.

While the technical application requirement for approval as a "bank holding company" under existing BL § 142 is being removed, any person or entity that owns or controls the stock of a New York-chartered banking

institution still would have to file an application under the appropri- ate section _ under Section 143-b if such acquisition results in a change of control of the banking institution or under Section 143-a if a company is formed to acquire the banking institution's stock, but no change of control of the banking institution takes place.

The Department may still examine bank holding companies, require reports from bank holding companies and issue orders against bank holding compa- nies. In addition, restrictions on borrowing from a subsidiary bank to purchase a bank holding company's stock and certain restrictions on director/officer interlocks between a bank holding company and unaffil- iated banking institutions would remain in effect.

In BL §§ 105,240 and 396, which relate to branching, and BL § 142-a, which relates to branching by an out-of-state bank via an acquisition of a banking institution in New York, amendments are made to the term "bank holding company" to retain the former two-bank holding company defi- nition for purposes of those sections. The reason for this is that those provisions extend New York's home office protection to the principal office of a state bank or trust company or national bank in a city or village of limited population, unless the principal office is that of a bank which is a subsidiary of a bank holding company as currently defined under New York law (i.e. two-bank holding company). If the term "bank holding company" as used in these sections were changed to the proposed one-bank holding company definition, then all such bank subsid- iaries (of one-bank holding companies) that might have been entitled to home office protection under the prior provisions would lose that protection.

Budget implications

This bill would not have an impact on state finances.

Effective date

This bill would take effect immediately.