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4000 - Advisory Opinions

Affiliated Banks Acting as Branches for Each Other


October 28, 1988

Roger A. Hood, Assistant General Counsel

The Michigan Banking Code was recently amended to permit any bank in that state to contract with another bank or banks to act as a branch to provide services to customers of the contracting bank. The subject holding company, on behalf of its member banks, has addressed a letter to our Chicago Regional Office enclosing a copy of a Contractual Branch Application form that was filed with the Commissioner of the Michigan Financial Institutions Bureau. The purpose of this application is to request approval for all ten of *** affiliated banks to act as branches for each other. The Chicago Regional Office has asked for guidance in handling this transaction. Because each bank operates one or more conventional branches, this transaction will result in the addition of upwards of 100 branches for each of *** affiliated banks.

Both the Michigan law and the Branch Services Agreement entered into by the several affiliated banks within the *** system make clear that the purpose of the arrangement is to constitute each office of each bank as a branch of each other bank. There is no indication that the arrangement will provide any system of agency agreements between the banks and their customers in an attempt to avoid the characterization of each office as a branch of each other bank that is a party to the agreement.

The agreement provides that each bank and the branch offices of each bank shall serve as branch offices of each other contracting bank and provide, inter alia, the following services:

1.  Savings deposits and withdrawals,

2.  Checking and money fund deposits and withdrawals,

3.  Certificates of deposit,

4.  IRA deposits.

The granting and renewal of loans is excluded from the banking services to be furnished, unless a bank expressly authorizes or requests that such services be performed in a particular instance.

The definition of the term "domestic branch" in section 3(o) of the Federal Deposit Insurance Act (12 U.S.C. 1813(o)) includes any branch bank, branch office or branch place of business "at which deposits are received or checks paid or money lent". The first two functions are clearly contemplated by the Branch Services Agreement. The third function, although excluded, may be performed at the specific request of any of the contracting banks. Accordingly, there appears to be no basis for finding that the Branch Services Agreement will not result in the establishment of branches of each of the contracting banks being established at each of the offices of the other contracting banks. (We have been informally advised by the Federal Reserve bank with jurisdiction over this matter that it will likewise regard this agreement as the establishment of branches by those contracting banks which are state member banks.)

The branch application procedures prescribed in § 303.2 of FDIC regulations are applicable to these transactions. Because these offices do not qualify as "remote service facilities", as defined in § 303.0(b)(17), the special procedures provided in § 303.2(c) are not applicable. The Branch Services Agreement must be treated as the establishment of numerous branches by each of the participating nonmember banks, but the banks are free to combine their publications of notice and the regional office may combine approval orders in one document. Other "streamlining" procedures which are acceptable to the regional office, but which comply with the requirements of § 303.2 of the regulations, may be appropriate.

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