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4000 - Advisory Opinions
Interstate Contract Branching Arrangements Between State Nonmember
Banks and Other Banks Permissible Subject to Same Conditions Imposed on
Intrastate Contract Branching Arrangements
FDIC--95--22
July 5, 1995
Jeffrey M. Kopchik, Counsel
You have asked whether a state nonmember bank may enter into an
interstate contract branching arrangement with an affiliated bank
located in another state when such an arrangement is permitted by state
law.
In 1993, the FDIC's General Counsel issued a staff advisory opinion
that took the position that insured state nonmember banks that enter
into agreements to have other banks (affiliated or nonaffiliated)
within the same state provide certain banking services to their
customers will not be required to apply to the FDIC for permission to
establish and operate a new branch pursuant to § 303.2 of the FDIC's
rules and regulations. FDIC Legal Division
Staff Advisory Opinion 93--57,
August 12, 1993. The Office of the Comptroller of the Currency's
("OCC") Chief Counsel had previously issued a similar no
objection letter on October 8, 1992. 1
On April 6, 1994, the OCC's Chief Counsel issued a no objection letter
which expanded the scope of the previous OCC letter to include contract
branching arrangements conducted by affiliated banks on an interstate
basis.
Section 101(d) of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("Riegle-Neal") (P.L. 103-328, September
19, 1994) added a new
§ 18(r) to the Federal
Deposit Insurance Act ("FDI Act''). This new subsection will permit,
effective September 29, 1995, a bank subsidiary of a bank holding
company to conduct certain basic banking services as agent for a
depository institution affiliate without being considered a branch of
that affiliate. 2
Significantly, § 18(r)(4) provides that this section shall not be
construed as affecting the authority of any depository institution to
act as agent for another depository institution under any other
provision of law.
On March 15, 1995, the "State" Comptroller issued an Order of
General Application which provides that state chartered banks may enter
into contract or accommodation branching arrangements with affiliated
banks on an interstate basis without filing a branch application with
the state Comptroller. The Order limits the accommodation services to
accepting deposits to existing accounts, processing withdrawals,
accepting loan payments, closing loans as agent, obtaining account
information and accepting the submission of account maintenance
information. However, the agency agreement must be submitted for review
and contract branching cannot begin until the state Comptroller
approves the arrangement in writing. The Order explicitly refers to
§ 101 of Riegle-Neal as well as the April 6, 1994 no objection letter
by the OCC Chief Counsel.
Section 3(o) of the FDI Act defines a "domestic branch" as:
"[A]ny 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. . . ."
12 U.S.C. 1813(o). This
definition has never been interpreted by a court of competent
jurisdiction.
However, section 36(f) of the National Bank Act contains a
definition of "branch" which is virtually identical to § 3(o)
of the FDI Act, and which has been interpreted by the Supreme Court and
several federal courts of appeals. First National Bank in Plant
City v. Dickinson, 396 U.S. 122 (1969); Independent Bankers
Association v. Smith, 534 F.2d. 921 (D.C. Cir. 1976), cert
denied, 429 U.S. 862 (1976) ("Smith"); Independent
Bankers Association v. Marine Midland, 757 F.2d. 453 (2d. Cir.
1986), cert denied, 476 U.S. 1186 (1986). In Smith,
the D.C. Circuit held that:
{{2-29-00 p.4945}}
"[A]ny facility that performs the traditional bank
functions of receiving or disbursing funds is a "branch' of a national
bank within the meaning of section 36(f) if (1) the facility is
established ( i.e., owned or rented) by the national bank,
and (2) it offers the bank's customers a convenience that gives the
bank a competitive advantage over other banks (national or state) that
do not operate similar facilities."
Smith, 534 F.2d. at 951-952. It is this line of reasoning
that the FDIC utilized in Staff Advisory Opinion 93--57. The opinion
states that since the bank providing the accommodation services is not
established by the customer's bank, the accommodation branch is not a
"branch" (for purposes of § 3(o) of the FDI Act) of the
customer's bank even though it may be receiving deposits or cashing
checks, both of which are traditional banking activities identified in
FDI Act § 3(o).
FDIC Legal Division Staff Advisory
Opinion 93--57 was limited to the intrastate context because
only that question was presented for review at the time. However, the
analysis contained in that letter and summarized immediately above
would be equally applicable to contract branching between banks
conducted on an interstate basis. Similarly, while your question
concerning interstate contract branching arises in the context of
affiliated banks, Advisory Opinion 93--57 permits intrastate contract
branching between affiliated and nonaffiliated banks. Thus, I see no
reason why interstate contract branching should not be permitted
between nonaffiliated banks.
In view of the OCC's 1994 no objection letter permitting interstate
contract branching by affiliated national banks and new
§ 18(r) of the FDI Act,
which we read to soon permit a bank affiliate of another depository
institution to act as agent for that institution on both an intrastate
and interstate basis (in addition to any other contract branching
authority it may currently have under any other provisions of law), I
am of the opinion that FDIC Legal Division Staff Advisory 93--57 should
be construed to permit interstate contract branching arrangements
between state nonmember banks and other banks (whether affiliated or
not), subject to the same conditions which the FDIC has imposed on
intrastate contract branching arrangements.
This letter should not be construed as approving any form of
contract or accommodation branching under facts or circumstances which
differ from those set forth in this letter and/or FDIC Advisory Opinion
93--57. Thus, the services that may be provided by a service bank
located in another state are limited to those described in FDIC
Advisory Opinion 93--57 and do not include, for example, opening new
accounts.
I trust that this letter is responsive to your question. Please feel
free to contact me if you have any further
questions.
1 The staff of the Board of Governors of the Federal Reserve
System ("Fed") has informed us that the Fed follows the OCC, but
they have not published a written opinion on this question. Go Back to Text
2 Section 18(r) also will permit a savings association which
was an affiliate of a bank on July 1, 1994 to conduct activities as
agent on behalf of that bank, with certain restrictions. Go Back to Text
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