FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Banking Institutions Providing Services to Customers of Affiliated Institutions Pursuant to New Jersey Statute Must Comply With Procedures for Establishing a Branch Office Under 12 C.F.R. Part 303
FDIC 91-34 April 23, 1991 Jeffrey M. Kopchik, Counsel
This is in response to your letter to Douglas H. Jones, Esq. concerning the above-captioned matter. I sincerely apologize for the delay in our response.
It is my understanding that on January 2, 1990 the New Jersey Inter-Affiliate Banking Bill ("Statute") was enacted into law. Assembly No. 3177, P.L. 1989, Chapter 245. The Statute permits banking institutions in New Jersey to accept deposits from and conduct other banking business with customers of affiliate banking institutions without being required to obtain a license as a branch office of that affiliated institution.1 The Statute defines "affiliates" as banking institutions which are owned by the same bank or savings bank holding company. Your clients, the ***, ***, ***, ***, and *** ("Petitioners"), have requested the Federal Deposit Insurance Corporation ("FDIC") to rule that banking institutions providing services to customers of affiliated institutions pursuant to the Statute are not branches of the institutions for which they act as agent pursuant to section 3(o) of the Federal Deposit Insurance Act ("FDIA"). 12 U.S.C. 1813(o).2
As a threshold matter, federal law is controlling concerning the question of what constitutes a branch pursuant to the FDIA. First National Bank in Plant City v. Dickinson, 396 U.S. 122 (1969). Section 3(o) of the FDIA defines a domestic branch as "any branch bank, branch office, branch agency, additional office, or any branch place of business. . .at which deposits are received or checks paid or money lent. . . ." Based upon the facts as presented in your letter, it seems clear that Petitioner banks desire to enter into an arrangement whereby all branch offices of each institution would, at the very least, accept deposits and pay checks on behalf of other affiliated institutions. The conduct of these activities would bring the agent bank clearly within the FDIA's definition of domestic branch.
Your letter cites Independent Bankers Association v. Smith, 534 F.2d. 921 (D.C. Cir. 1976), cert. denied, 429 U.S. 862 (1976) and Independent Bankers Association v. Marine Midland, 757 F.2d. 453 (2d. Cir. 1986), cert. denied, 476 U.S. 1186 (1986) in support of your argument that the FDIC should not consider agent banks operating pursuant to the Statute to be branches of their affiliates. In Smith, the District of Columbia Circuit Court of Appeals was presented with the question of whether or not an automated teller machine ("ATM") owned and operated by a bank was a branch of that bank pursuant to section 36(f) of the National Bank Act.3 In Marine, the Second Circuit Court of Appeals was presented with the same branching question that faced the Smith court, except that the ATM in Marine was owned by a grocery store. The District of Columbia Circuit held that the ATM in question was a branch of the bank which owned and operated it, while the Second Circuit held that the ATM in that case was not a branch of Marine Midland Bank.
In our opinion, Smith and Marine are not controlling in the present circumstances. Both of those cases involved ATM's that performed certain limited banking functions. However, the instant case involves "brick and mortar" branch offices that are permitted, pursuant to the terms of the Statute, to conduct any form of banking business or transaction on behalf of an affiliate. Thus, for example, an agent bank could make loans or issue letters of credit on behalf of an affiliate. These types of activities entail much greater risk to the institutions involved than the routine ministerial transactions performed by an ATM.4
The FDIC's procedures for establishing a branch office are contained in section 303.2(a) of the Corporation's regulations. The rule provides that such applications shall be in letter form and filed with the appropriate regional director. The notice procedures of section 303.6(f) must also be followed. The procedures outlined in these sections of our regulations are not burdensome and you will note that such applications are handled in an expeditious manner. That being the case, the FDIC is of the opinion that your clients' ability to take advantage of the Statute will not be significantly impeded by adherence to these requirements. Nonetheless, the staff of the Legal Division and Division of Supervision are in the process of considering whether to recommend that the Corporation's regulations be amended to provide abbreviated application and/or notice procedures that would apply to agent bank arrangements.
This opinion is based upon the facts as presented to the Legal Division in your letter to Douglas H. Jones, Esq. Should the facts change in the future or some fact be present of which we are not currently aware, the substance of this opinion may change.
1The Statute does not provide that institutions which conduct transactions as agent for affiliated institutions are not branches of that affiliate. It simply dispenses with any licensing requirement. Go back to Text
2In view of the fact that Petitioner banks are national banks and state member banks, as well as state non-member banks, you have requested a similar ruling from the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency ("OCC"). Go back to Text
3The definition of "branch" in the National Bank Act, 12 U.S.C. 36(f), is virtually identical to section 3(o) of the FDIA. Go back to Text
4It should also be noted that the fact that the Statute makes one bank an "agent" of another arguably places the agent bank under the control of the "principal" bank. Go back to Text