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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
{{6-28-91 p.4546}}
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
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