Relates to certain powers and duties of the superintendent of banks

Summary of provisions

Section 1 of the bill amends BL §36(10) to include examination and investigative reports of licensed mortgage loan originators among the types of reports protected by the section. It also makes certain other conforming changes.

Section 2 of the bill amends the heading of BL §103 to add the words "and other credit exposure" so that the heading of that section will more accurately reflect the scope of that section to reflect amendments relating to credit exposure resulting from derivatives and other securities transactions. Section 2 of the bill also amends BL 103(1) to delete specific references to rating agencies and rating grades and replace these references with a reference instead to investment securities that meet standards of creditworthiness established by the superintendent. Similar amendments are also made to Paragraphs (j) and (k).

Section 3 of the bill adds "control of banking institutions" to the title of Article III-A of the Banking Law. The purpose is to clearly designate that Article III-A deals with not only bank holding companies, but also control of banking institutions generally.

Section 4 of the bill amends BL §202-b(1) to make changes consistent with those made to BL §103.

Section 5 of the bill amends Subdivisions 12-a and 21-a of BL §235 to make changes consistent with those made to BL § 103.

Section 6 of the bill adds a new BL §260-a to provide for procedures for a mutual savings bank to amend its organization certificate and by-laws.

Section 7 of the bill amends BL §402 to make similar changes to the savings and loan association article.

Section 8 of the bill amends BL §640(9)(v) and (vi) to make changes consistent with those made to BL Section § 103.

Section 9 of the bill makes certain technical amendments to Real Property Actions and Proceedings Law §1306.

Section 10 of the bill provides for the effective date.

Existing law

BL §36.10 relates to the confidential and nonpublic nature of confidential supervisory-related information.

BL § 103 relates to limits on loans and extensions of credit by a bank or trust company to a single person or entity. The section places maximum limits on exposures, whether via loans, purchases of securities, or other extensions of credit, to a single person or entity and provides various rules concerning exemptions, the effect of collateral, and the like. Currently, the title of Section 103 refers to "loans, purchases of securities and total liabilities to bank or trust company of anyone person." The title does not refer generally to "credit exposure." Paragraphs (i), (j) and (k) of BL §103(1) provide exemptions from the calculation of total credit exposure for the purchase by a bank or trust company of certain short-term bonds, debentures, notes or other obligations rated in one of the three highest rating grades by an independent rating service designated by the banking board.

Article III-A of the Banking Law is currently entitled "Bank Holding Companies".

BL §202-b(1) relates to the requirement for New York-licensed branches and agencies of foreign banks to maintain liquid assets on deposit in New York.

BL §235(12-a) designates as a permissible savings bank investment obligations of any corporation organized under the laws of any state of the United States maturing within 270 days, and which have the highest rating of an independent rating service designated by the banking board.

BL §235(21-a) designates as a permissible savings bank investment, subject to certain maximum amounts per issuer, interest-bearing obligations payable in United States funds which at the time of investment are rated in one of the three highest rating grades by each rating service, designated by the banking board, which has rated such obligations.

Currently, there is no formal procedure in the Banking Law for a mutual-form savings bank to make changes to its organization certificate or bylaws.

BL §402 provides for the amendment of the articles of association and bylaws of a savings and loan association.

BL §640(9) enumerates assets constituting "permissible investments" for purposes of the requirement in BL §651, applicable to a licensed money transmitter, which must maintain permissible investments in an amount at least equal to the amount of its outstanding payment instruments and outstanding travelers checks. Paragraphs (v) and (vi) of BL .640(9) designate two permitted categories of notes, bonds and other obligations having a rating in one of the three highest grades by a nationally recognized investment service organization that has been engaged regularly in rating such obligations for a period of not less than five years.

Prior legislative history

This is a new bill.

Statement in support

The amendment in Section 1 of the bill would extend the confidentiality protection in BL §36(10) for examination and investigation material to cover such materials related to MLOs, to the same extent as it does for other regulated persons or entities. In order to make sure that there is no gap in coverage, the section is also amended to add "any other person or entity subject to the supervision of the department."

The bill amends BL §§ 103, 202-b, 235 and 640, which currently reference permitted investments for various types of supervised entities, as including securities having a specified rating. The amendment would eliminate references in the statute to rating agencies, in favor of standards of creditworthiness established by regulation by the Superintendent. In the recent past, the well-known rating agencies have experienced a number of failures, including failure to recognize credit problems at Enron and WorldCom, and failure to recognize the problems with mortgage-backed securities that led to rating agencies giving AA ratings to mortgage-related securities that eventually experienced high default rates. This has led to criticism of an over-reliance on ratings. On the federal level, the Dodd-Frank Act mandates that federal

statutes no longer refer to or require ratings by credit rating entities, and requires instead that the federal banking and securities regulators establish applicable standards of creditworthiness. These amendments would enable New York to follow suit, although they do not mandate a total elimination of references to rating agencies in the regulations to be adopted. Given the large number of community and regional banks in the states, it is recognized that some use of the ratings of rating agencies or other evaluations of creditworthiness, combined with a financial institution's own determinations, will provide a balanced solution to criticisms of the use of ratings alone.

The bill also amends BL § 103(1) by adding a new unnumbered paragraph at the end of such subdivision, which authorizes the Superintendent to determine the manner and extent to which credit exposure resulting from derivatives transaction, repurchase agreements, reverse repurchase agreements, securities lending transactions and securities borrowing transactions must be taken into account by a bank for purposes of the lending limit. Section 610 of the Dodd-Frank Act contains similar requirements with respect to national banks; Section 611 of the Dodd-Frank Act prohibits an insured state bank from engaging in derivatives transactions unless its chartering state's law with respect to lending limits takes into consideration the credit exposure to derivative transactions. While there already exists some flexibility in the lending limit statute to interpret what constitutes credit exposure, the amendment is designed to provide certainty that New York law will comply with the requirements of the Dodd Frank Act.

Article XI of the Banking Law does not currently provide a mechanism for a mutual savings bank to amend its charter. Proposed BL §260-a would provide for such amendments, along lines that currently apply to a mutual form savings and loan association.

BL §402 is amended to make clear that any appeal of a ruling of the Superintendent regarding an amendment to the charter of a mutual savings and loan association is conducted under Article 78 of the CPLR. This conforms to the new provisions of BL .260-a.

Budget implications

There are no budget implications from this bill.

Effective date

The bill would take effect immediately upon enactment, except that sections 2, 4, 5 and 8 shall take effect only at such time as the Superintendent certifies that the Superintendent has adopted the regulations required by this act.