Washington State Department of Financial Institutions

Opinion Letters 2004

DOB OPINION NUMBER 04-01

Date:
February 10, 2004

From:
David G. Kroeger, Director of Banks, Department of Financial Institutions

Subject:
Retention of Certain Powers and Authorities of a Stock Savings Bank (RCW Title 32) Upon Approval of an Application to Convert to a Commercial Bank (RCW Title 30)

The Stock Savings Bank [hereinafter, “SSB Bank”] is contemplating applying to the Division of Banks [hereinafter, “Division of Banks”] of the Department of Financial Institutions [hereinafter, “DFI”] for conversion from a Washington stock savings bank (RCW Title 32) [hereinafter, “Title 32 Bank”] to a Washington commercial bank (RCW Title 30) [hereinafter, “Title 30 Bank”].  Prior to making such application, however, SSB Bank has requested that the Director of Division of Banks opine on whether SSB Bank may retain certain powers and authorities of a Title 32 Bank upon conversion to a Title 30 Bank (i.e., a “resulting state bank”) according to RCW 32.34.010.

Barring any unforeseen conditions of and circumstances related to the institution, we have determined that, if SSB Bank were to convert into a Title 30 Bank, the Director of the Division of Banks would allow SSB Bank to retain certain powers and authorities of a Title 32 Bank in the manner and to the extent set forth in this letter.

However, in seeking permission to retain certain powers and authorities of a Title 32 Bank, SSB Bank must rely upon the provisions of RCW 30.04.217, which was recently enacted by the Washington State Legislature (2003 c 24 1).  Therefore, because this is the first time that we have been called to interpret and apply RCW 30.04.217, we also take this opportunity to set forth the position of the “DFI” as to how a Title 30 Bank may exercise certain powers and authorities of a Title 32 Bank.

The Implications of the New Parity Statute

Controlling Statute.  Neither RCW 32.34.010 nor any other provision of Chapter 32.34 of the Revised Code of Washington addresses the retention of Title 32 powers and authorities upon conversion to a Title 30 Bank charter.  Therefore, the controlling statute in this matter is RCW 30.04.217, which provides as follows:

Notwithstanding any other provisions of law, in addition to all powers, express or implied, that a bank or trust company has under the laws of this state, a bank or trust company shall have the powers and authorities conferred upon a mutual savings bank under Title 32 RCW, only if:
  1. The bank or trust company notifies the director at least thirty days prior to the exercise of such power or authority by the bank or trust company, unless the director waives or modifies this requirement for notice as to the exercise of a power,authority, or category of powers or authorities by the bank or trust company;
  2. The director finds that the exercise of such powers and authorities by the bank or by the trust company serves the convenience and advantage of depositors, borrowers, or the general public; and
  3. The director finds that the exercise of such powers and authorities by the bank or by the trust company maintains the fairness of competition and parity between banks or trust companies and mutual savings banks.
  4. As used in this section, "powers and authorities" include without limitation powers and authorities in corporate governance and operational matters.

The restrictions, limitations, and requirements applicable to specific powers or authorities of mutual savings banks shall apply to banks or trust companies exercising those powers or authorities permitted under this section but only insofar as the restrictions, limitations, and requirements relate to exercising the powers or authorities granted banks or trust companies solely under this section.

[Italics added.] No General Invocation Allowed.  RCW 30.04.217 permits no general invocation of “parity” with the power and authority of a Title 32 Bank.  Rather, as is evident from a reading of the governing statute, (1) a Title 30 Bank seeking to exercise any power or authority of a Title 32 Bank must notify the Division of Banks at least 30 days prior to the exercise of such powers and authorities, and (2) the Director of the Division of Banks must find that such exercise (a) serves the convenience and advantage of depositors, borrowers or the general public, and (b) maintains the fairness of competition and parity between Title 30 Banks and Title 32 Banks.  Moreover, in some instances as noted in this letter, the exercise or retention of Title 32 powers and authorities will be determined by the Division of Banks only on a case-by-case basis.  As in all applications or statutory request for a Director’s finding, the Division of Banks will make its determination with a view toward the overall safety and soundness of the institution making the application or request.

General Guidelines for Exercising Title 32 Bank Parity.  When requesting to retain Title 32 Bank powers upon conversion to a Title 30 Bank charter, the institution making the request shall be mindful of the following general guidelines, which are consistent with the DFI’s existing statutory authority:

Continuance of Existing Practices.  If the institution making the request can demonstrate that the exercise of Title 32 Bank powers and authorities is a continuation of actual and ongoing practices to which the institution has engaged without materially significant interruption prior to conversion, then the Division of Banks will generally permit the institution to continue engaging in such practices as a Title 30 Bank; provided, however, that the institution shall be in compliance with applicable federal laws and regulations pertaining to such powers and authorities.

Exception for Lending Limits.  Notwithstanding the general rule for continuance of existing practices set forth above, the institution will not be permitted to exercise the lending limits of a Title 32 Bank under a Title 30 Bank charter except on a case-by-case basis, subject to Title 30 Bank standards for safety and soundness.

Restrictions, Limitations & Requirements Applicable to Specific Powers or Authorities.  Notwithstanding the above, if a Title 30 Bank seeks to exercise a specific power and authority of a Title 32 Bank, the Title 30 Bank shall, in the exercise thereof, be bound by all restrictions, limitations and requirements of law associated with the exercise of that specific power and authority, including both state and federal laws and regulations.

SSB Bank’s Specific Requests

The Division of Banks has received from SSB Bank seven (7) specific requests for exercise of Title 32 Bank powers and authorities either intrinsic to RCW Title 32 or by way of a federal parity provision contained in RCW Title 32.

RCW 32.32.500 – Mergers, consolidation, conversion, etc. – Approval – Concentration Limits.

The RCW Title 32 contains a broader definition of “financial institution” and different concentration requirements than those contained in RCW Title 30.   As outlined above, we will consider on a case-by-case basis any specific requests for the exercise of a broader definition of “financial institution” and concentration requirements as set forth in RCW Title 32.

RCW 32.08.140 – Powers of Banks.

We have no objection to SSB Bank maintaining present real estate brokerage activities through its [city redacted] Office.

RCW 32.20.330 Investments – Loans, Preferred Stock, or Interest-Bearing Obligations – Restrictions;  (Loans to One Borrower).

We have no objection to the bank retaining existing loans that are presently not in conformance with lending limit restrictions as contained in RCW 30.04.111.  Any additional loans to the same borrower will be subject to the limits contained in RCW 30.04.111.

RCW 32.20, RCW 32.04 – In Related Businesses.

A subsidiary of SSB Bank [hereinafter, “SSB Subsidiary”] is engaged in venture capital.  We have no objection to the bank retaining SSB Subsidiary as a subsidiary of SSB Bank, subject to any conditions imposed by applicable state and federal banking regulators’ rules, regulations, or orders.

RCW 30.04.125 (3) authorizes investments in corporations, including stock in a small business investment company licensed and regulated by the United States as authorized by the Small Business Act, (Public Law 85-536, 72 Statutes at Large 384), in an amount not to exceed 5% of its capital and surplus, without the approval of the director.

RCW 30.08.410, RCW 32.20.330 – Unrelated Business.

The RCW Title 32 provisions include parity with the OTS provisions thereby giving a Title 32 Bank broader authority than Title 30 Bank.  As outlined above, we will consider requests for such broader authority on a case-by-case basis.

RCW 32.20 – Securities.

Currently, SSB Bank has investments in corporate stock.  We have no objection to the bank retaining its existing investments in corporate stock, subject to any conditions imposed by FDIC rules, regulations, or orders.

[12 U.S.C 1831 a] sets forth permissible activities for insured State banks.  SSB Bank should review and be in compliance with any restrictions contained in 12. U.S.C. 1831 a.

RCW Subsidiary Companies.

Title 32 provisions include parity with OTS provisions thereby granting Title 32 institutions broader authority than Title 30.  As outlined above, we will consider this request on a case-by-case basis.

Concluding Remarks

We certainly hope that you appreciate that some of the requests you have presented concern matters that are of first impression before the Division of Banks and that, in the interest of the vitality of both charters (RCW Title 30 and RCW Title 32) we must steer a course that we believe will be rational, consistent and also dictated by applicable federal and state law and regulation.

We appreciate your patience in the receipt of our analysis.  If you would like to discuss this interpretation in more depth or would like to present additional information for our consideration please contact me.


Banks 1999 Opinion Letters

DOB OPINION NUMBER 99-001
Date: December 14, 1999

From: John L. Bley,
Director, Department of Financial Institutions

Subject:
Out-of-state banks providing fiduciary services to Washington residents through a local office

This letter is your approval by the Department of Financial Institutions for Your Client to engage in certain trust and financial service activities in the State of Washington without being considered to be engaged in trust business in Washington.  Your Client is a national bank with its main office in California. It wishes to provide its fiduciary and other financial services to Washington residents through a representative office.

An out-of-state fiduciary has full power to conduct trust activities specified in RCW 30.08.150 as long as the trust administration and decisions take place outside the State of Washington.   Maintaining a sales force in the State of Washington, engaging in client contact, advertising, providing applications and other pertinent documentation, and administering real property located in Washington are not considered by the Department of Financial Institutions to rise to the level of trust administration or decision-making.

We understand that Your Client will open an office and maintain a sales force in the State of Washington, which employees will solicit the appointment of Your Client as trustee, executor or custodian under trusts, wills and similar fiduciary instruments.  These employees may meet periodically with clients and potential clients in Washington to explain the services Your Client can provide and/or explain the decisions that Your Client has made with respect to the account or estate at its home office in California.  Your Client would administer these trusts, estates and other accounts from its California office. Your Client’s home office would provide core fiduciary functions, including accepting new accounts, reviewing and approving discretionary matters, conducting periodic annual reviews, providing any investment management of managed accounts, maintaining records regarding the accounts and generating periodic account statements.  California will also be the principal location for officers having direct supervisory authority over the individual accounts Your Client administers for Washington residents.  Of course, a number of the instruments pursuant to which Your Client will be acting in Washington, including, but not limited to, serving as an executor under a will, a beneficiary under a deed of trust, a custodian under a custodial agreement, or a trustee under a trust agreement, may be governed by Washington or California or other state laws, as the situation dictates, but irrespective of the choice of law, the core fiduciary activities as to such services will be performed in California.

We understand that Your Client may, in addition, provide various investment management and advisory services to Washington residents in a similar manner.  This may involve Your Client’s employees located in the State of Washington soliciting Washington residents to appoint Your Client as their investment manager or advisor.  All administration of these accounts, including acceptance, review, record keeping, statement rendering, etc., would take place outside of Washington.  Finally, Your Client’s employees may at various times solicit Washington residents with regards to other financial services or products that Your Client may be marketing at the time.  Again, all administration and decision-making with regards to these future activities would be handled outside of the state.

Such activities do not rise to the level of establishment of a branch engaging in core banking or trust activities.  As such, these activities are not prohibited by Washington law and these activities will not subject Your Client to regulation by the Washington State Department of Financial Institutions.  The fact that Your Client is a national bank is irrelevant to the conclusions of law concerning representative offices stated herein and therefore your reference to an OCC interpretive letter is respectfully ignored.

With regard to the investment management and advisory services, as long as the Washington employees are employees of Your Client and not a subsidiary or affiliate, those employees are not subject to regulation by the Washington State Department of Financial Institutions, Securities Division.

Different sets of facts may lead to different conclusions.  Should you have any questions, please contact the undersigned.


DOB OPINION NUMBER 99-002

Date: December 22, 1999

From: John L. Bley, Director, Department of Financial Institutions

Subject:
State of Washington’s jurisdiction over a bank’s Internet website

By letter dated November 9, 1999 you inquired whether the state of Washington would assert jurisdiction over your bank’s interactive Internet website.  Based on the facts as described below, we have concluded that the state of Washington does not have jurisdiction over your website.

Your bank is proposing “to conduct banking, mortgage brokering, and mortgage lending services via the Internet.”  Its primary business will be to provide “banking services including, but not limited to, checking and savings accounts, certificates of deposit, and mortgage lending and brokering, to Washington residents.  The bank’s focus is to conduct business over the Internet with customer support via telephone, fax, e-mail, and mail.”  The bank does not intend to operate out of a physical location in the state of Washington.  Your bank is an FDIC insured industrial loan company chartered under Divisions 7 of the California Financial Code.

RCW 30.04.010(1) defines banking as including “the soliciting, receiving or accepting of money or its equivalent on deposit as a regular business.” RCW 30.04.020(2) prohibits a foreign corporation whose name contains the word bank or whose articles of incorporation empower it to engage in a banking or trust business from engaging in that banking or trust business in this state unless the corporations (a) is expressly authorized to do so under this title…

In order for a Washington resident to avail itself to your services, the Washington resident must take the affirmative act of clicking onto your website.  In essence, the Washington resident is coming to you, you are not coming to the Washington resident.  We find particularly persuasive that you will have no physical presence in the state of Washington and that RCW 30.04.020 only prohibits banking activities “in the state of Washington.”  As a result, it is our conclusion that your bank will not be conducting a banking business “in the state of Washington.”

To hold otherwise creates significant practical difficulties.  We do not believe it was the legislature’s intent for the Washington State Department of Financial Institutions to impose cease and desist orders on all bank interactive websites throughout the country unless such banks complied with our rules of entry RCW 30.04.280, RCW 30.38.010.  We will, therefore, not imply such jurisdiction based on a current reading of the statutes.  Different facts may cause different conclusions.  Should you have any questions, please contact the undersigned.


DIVISION OF BANKS

Opinion Letters 1998

DOB OPINION NUMBER 98-001

Date: November 2, 1998

From: John L. Bley, Director, Department of Financial Institutions

Subject:
Rules of Entry to a Savings Bank and the Definition of a Savings Bank

The purpose of this letter is to clarify and confirm certain information from our recent communications regarding the regulatory applications filed by _________(“Bancorp”) to charter ________ Savings Bank, a Title 32 Washington savings bank (“__SB”), and to merge __SB with and into ______ (“Other Bank”).  We have communicated about two separate issues involving the chartering of __SB and the merger of __SB with Other Bank: (1) whether the establishment of __SB by Bancorp is subject to the rules of entry in Title 30 of the Washington statutes; and (2) whether our office regulates Title 32 savings banks as “banks” within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHCA”).

It is my office’s interpretation that the establishment of a Title 32 savings bank is not subject to the rules of entry in Title 30, which rules govern the establishment of and the merger with a Title 30 commercial bank.  The rule of entry provisions in Sections 30.40.232 and 30.49.125(7) of the Washington statutes only apply to state banks which are chartered under Title 30.  A state-chartered savings institution organized under a different title (i.e. Title 32 or 33) is therefore not subject to the rules of entry set forth in Title 30 of the Washington statutes.

A separate issue is whether our office considers a Title 32 savings bank to be a “bank” within Section 3 of the BHCA, to which inquiry the answer is “yes.”  The definition of a “state bank” in Section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(a)(2)) specifically includes a state-chartered savings bank.  My understanding is that such an FDIC-insured state savings bank is appropriately considered to be a “bank” within the definition set forth in Section 2 of the BHCA rather that Section 4(c)(8) non-bank company.

If you have any questions or comments about the above analysis, please do not hesitate to contact me.


DOB OPINION NUMBER 98-002

Date: November 23, 1998

From: John L. Bley, Director, Department of Financial Institutions

Subject:
Relating to purchase of the assets and assumption of the liabilities of a Washington bank branch by an out-of-state bank

You have written this office seeking out interpretation of whether a proposed acquisition by an out-of-state institution of the ______ Branch (the “Branch”) of _______ Bank (the “Bank”), _______, Washington, would be permitted under Washington law.  You advise me that the Bank is headquartered in _______, Washington and has been chartered to conduct a banking business in Washington for more than five years.  The Bank, with its holding company, has entered into an agreement with _______ pursuant to which the Bank will merge with a new interim national bank, which will be the surviving bank in the transaction.  As a condition for receiving approval for the transaction, the bank has agreed to divest the Branch to a competitively acceptable acquirer.  Although the execution of an agreement to sell the Branch is a condition to closing the acquisition by ________, completing the sale of the Branch will occur after _______ acquires the Bank.

You indicate that at least one of the competing bidders for the Branch is a commercial bank headquartered outside the state of Washington that does not currently have any branches or other banking operations in this state.  You are aware that an out-of-state financial institution may engage in banking in this state provided that the out-of-state bank resulted from an interstate merger or acquisition of all or substantially all of the assets, and provided that the acquired bank has been in operation for more than five years.  RCW 30.38.010.  Although the Branch is one of a number of branches operated by the Bank, you advise that, prior to the closing of a Branch Purchase and Assumption Agreement for the assets and liabilities of Branch, all or substantially all of the other banking assets including all of the other banking offices of the Bank will be acquired by ______ either pursuant to a separate purchase and assumption agreement or by a dividend of such assets and operation from the Bank to _______.  At the time of the closing of the sale of the Branch to an out-of-state acquirer, the Branch would constitute the only remaining banking operation and substantially all of the assets of the Bank.

Based upon the foregoing facts as you have represented them, we believe that purchase of the assets and assumption of the liabilities of the Branch by an out-of-state bank would be consistent and would comply with Washington law, RCW 30.38.010.  Please feel free to forward this letter to any of the federal banking regulatory authorities who might seek assurance from this office that such transaction would be consistent with Washington law.  I would be happy to confirm this directly with any federal regulatory agency and comment specifically upon an application that might be filed by a proposed acquirer.


DOB OPINION NUMBER 98-003

Date: December 1, 1998

From: John L. Bley, (concurrence)

Subject:
Request for concurrence on lending limitations

Thank you for taking the time to speak with me this morning concerning questions involving the proper interpretation of lending limitations applicable to state-chartered banks.  In our discussion, you indicated that you would consider issuing a written concurrence if requested to do so.

I am writing to request your written concurrence in the following interpretations of the lending limitations under RCW 30.04.111, and implementing regulations at WAC 50-12-210 through 50-12-300:

  1. Generally, the lending limit applicable to state-chartered banks is triggered by the actual advancement of loan proceeds to a borrower, not by a loan commitment to advance loan proceeds to a borrower in the future.  A loan commitment to advance funds to a borrower in the future is not a “loan or extension of credit” subject to the lending limit imposed by RCW 30.04.111.  Upon the actual advancement of funds pursuant to such a loan commitment, the amount advanced becomes a “loan or extension of credit” subject to the lending limit imposed by RCW 30.04.111.  

  2. The only instances in which a loan commitment to advance funds in the future constitute a “contractual commitment to advance funds,” and thus a loan or extension of credit under WAC 50.12.230(2), are the two limited instances described in WAC 50-12-230(3)(a) and (b) involving obligations to advance funds to or for the benefit of third parties, under the circumstances indicated in such subsections.

  3. The loan commitment made in the following hypothetical circumstances would not constitute a loan or extension of credit subject to the lending limit established by RCW 30.04.111, and would not violate such loan limit: A bank’s lending limit is $1,800,000.  The borrower has an outstanding loan balance of $1,400,000.  The bank gives the borrower a written commitment to advance an additional $1,000,000, with a proviso in the commitment that no monies will be advanced thereunder if such advance would make the total outstanding loan(s) by the bank to the borrower exceed the legal lending limit applicable to the bank. Thereafter, the bank makes disbursements to the borrower pursuant to such commitment, but at no time does the borrower’s outstanding loan balance owed to the bank exceed $1,800,000.

Per your suggestion, I have provided a signature space below for purposes of indicating your concurrence.  Please contact me if there are any questions.  Thank you for your willingness to consider and address these questions.

DIVISION OF BANKS

Opinion Letters 1997

DOB OPINION NUMBER 97-001

Date: February 28, 1997

From: John L. Bley, Director, Department of Financial Institutions

Subject:
Request for an Opinion Concerning Reciprocity

You have stated that _______ Trust Company (“__TC”) desires to provide fiduciary services from offices outside the State of Washington.  In order to do so, __TC would like an opinion from me indicating that “reciprocity” exists within the State of Washington which would allow out-of-state trust companies to enter Washington for the purpose of providing fiduciary services to Washington residents.

RCW 30.04.020(2) states, in relevant part, that a

foreign corporation…may not engage in…a trust business in this state unless the corporation…is expressly authorized to do so under this title, under federal law, or by the director…

I hereby confirm that an out-of-state trust company may establish a trust office in Washington state with full power to conduct trust activities specified in RCW 30.08.150, so long as such office does not constitute a “branch” as defined in RCW 30.04.010 which precludes the taking of deposits.  Should an out-of-state trust company desire to establish an office in Washington state, the appropriate application must be filed with the Division of Banks of this department.


DOB OPINION NUMBER 97-002

Date: October 13, 1997

From: John L. Bley, Director, Department of Financial Institutions

Subject:
Washington law does not prohibit an out-of-state trust company from establishing a trust in Washington, so long as such trust business does not constitute a “branch.”

It is our understanding from your October 2, 1997 letter that _____ Trust Company (__TC) wishes to provide fiduciary services to Washington residents, including holding title to real property in ___TC’s name as fiduciary.

As represented in your letter, __TC is an Idaho chartered trust company and is regulated by the Idaho Department of Finance.  __TC does not accept deposits and is not a member of the FDIC.  All fiduciary decision and administration of the trusts will be made by __TC at is licensed location(s) in Idaho.

Washington law does not prohibit an out-of-state trust company from establishing a trust in Washington, so long as such trust business (as defined in RCW 30.08.150(2)-(12)) does not constitute a “branch.”The Revised Code of Washington (RCW 30.04.010) states in relevant part, that a “branch” is defined as any established office of deposit, domestic or otherwise, maintained by any bank or trust company other than its head office.

It is my opinion that the fiduciary business to be conducted by __TC in Washington will not constitute a “branch.”  Therefore, __TC may conduct a fiduciary business in Washington with full power to conduct trust activities specified in RCW 30.08.150 as long as the trust administration and decisions take place in Idaho.


DIVISION OF BANKS

Opinion Letters 1996

DOB OPINION NUMBER 96-001

Date: January 26, 1996

From: John L. Bley, Director, Department of Financial Institutions

Subject:
Automobile Extended Service Program

A question has arisen concerning whether Washington state banks are able to engage in the sale of extended service contracts to the same degree that national banks already can in Washington state.  This letter confirms that authority.

As I understand it the ___________ in cooperation with the Corporation for American Banking, a for-profit subsidiary of the American Bankers Association, is developing a sponsored automobile extended service program for its members.  This program will be underwritten through __________, Inc.  You are interested in making this program available to state-chartered banks to allow them to sale extended service contracts to bank automobile loan customers. These contracts will allow state banks to earn a fee, minimize the risk of borrowers’ default and bring a valuable service to their customers.   We are aware that the Office of the Comptroller of Currency has recently confirmed that national banks can sell extended service contracts (see OCC Interpretive Letter No. 671).  Under Washington law, state-chartered banks are afforded the same powers and authorities as national banks.RCW 30.04.215(3).Furthermore, this activity would also be considered by this office to be incidental to the business of banking and therefore state-chartered banks would have direct authority to engage in such activities.RCW 30.08.140(13).

Should you have any questions, please contact the undersigned.


DOB OPINION NUMBER 96-002

Date: February 29, 1996

From: John L. Bley, Director, Department of Financial Institutions

Subject:
Agency Agreement Powers of State Chartered Banks

By letter dated February 27, 1996 you requested an opinion from this office concerning whether Washington state-chartered banks currently have the power and authority to act as agent for one another in the performance of their lawful operations.  It has been and continues to be the view of this Department that state banks acting as agent for one another have implied authority pursuant to RCW 30.08.140(13).

This opinion is further reinforced by the bill language which resulted from the Interstate Working Group process this summer.  Section 7 of that bill confirms that these agency agreements exist today and imposes a requirement that written notice of the existence of such agreements be given to the Director.  Obviously, if the authority did not exist today, Section 7 would be a useless provision.

As always, should you have any questions, please contact the undersigned.


DOB OPINION NUMBER 96-003

Date: April 29, 1996

From: John L. Bley, Director, Department of Financial Institutions (concurrence)

Subject:
Interpretation of the amendments contained in Washington State’s new interstate branching law as these revisions relate to limited services provided by Bank branch personnel at off-site locations.

This letter is to confirm ___ Bank of Washington’s interpretation of the amendments contained in Washington State’s new interstate branching law (Chapter 2, Laws 1996) as these revisions relate to limited services provided by ____ Bank branch personnel at off-site locations.  Specifically, the bank requests your confirmation that the bank is not required to obtain a branch certificate for off-site locations, such as retirement homes, schools, or similar facilities, where personnel from existing branches periodically cash checks, open accounts, take deposits, and perform other related services (collectively, “limited services”).  These limited services do not appear to require the bank to obtain a branch certificate for these off-site locations under the recent revisions of Title 30 RCW.

Sections 2 and 4 of the interstate branching law amend RCW 30.04.010 and 30.04.280, respectively.  The revisions in section 2 amend the “branch” definition as follows:

“Branch ((bank))” means any established office of deposit ((or discount)), domestic or otherwise, maintained by any bank or trust company, ((domestic or otherwise,)) other than its ((principal place of business, regardless of whether is be in the same city or locality.)) head office.  “Branch” does not mean a machine permitting customers to leave funds in storage or communicate with bank employees who are not located at the site of the machine, unless employees of the bank at the site of the machine take deposits on a regular basis.  An office or facility of an entity other than the bank shall not be deemed to be established by the bank, regardless of any affiliation, accommodation arrangement, or other relationship between the other entity and the bank.

The last sentence of the revision appears to encompass the described limited services.  Under the limited services program, the bank establishes a relationship with certain entities (e.g., retirement homes, schools, etc.) to provide limited services at a particular entity’s facility on an agreed schedule, which is generally once a week for one or two hours.  The proposed limited services appear to be satisfy the new “other entity” exemption added to the branch definition.  Moreover, the addition of the term “established” within the definition narrows the branch definition to include more permanent branch locations as opposed to periodic provision of limited services at the facility of a retirement home, school, or other similar entity.

The revisions in section 4, which amend RCW 30.040.280, support the conclusion that the proposed limited services are not branches.  RCW 30.040.280 was amended as follows.

No person shall engage in banking except in compliance with and subject to the provisions of this title, ((except it be)) unless it is a national bank or except insofar as it may be authorized so to do by the laws of this state relating to mutual savings banks ((,nor shall any)) or savings and loan associations.  A corporation shall not engage in a trust business except in compliance with and subject to the provisions of this title ((, nor shall any)).  A bank shall not engage in a trust business except as ((herein)) authorized ((, nor shall any)) under this title.  A bank or trust company shall not establish any branch except in accordance with the provisions of this title.  ((The practice of collecting or receiving deposits or cashing checks at any place or places other than the place where the usual business of a bank or trust company and its operations of discount and deposit are carried on shall be held and construed to be establishing a branch.))

The removal of the last sentence form this section when read in conjunction with the revisions to the “branch” definition in RCW 30.04.010 appears to exclude those locations where limited services are preformed from being considered branches or requiring branch applications when the revisions take effect on June 6, 1996.

If the Department concurs in this interpretation of these Title 30 revisions as the apply to the described limited services at off-site locations, please indicate your agreement by signing this letter on the signature line provided below and returning a copy to me.  To assist your review of this request, a copy of an initial limited services schedule is attached to further describe the location and frequency of these services.

If I can provide any additional information or you would like to discuss this matter further, please call me.


DOB OPINION NUMBER 96-004

Date: August 7, 1996

From: John L. Bley, Director, Department of Financial Institutions

Subject:
Whether a Washington corporation serving as a trustee owned by a trust company or bank with trust powers regulated by a state banking department or the OCC is a “trust company,” and if a Washington trust company may invest in all the voting stock of a Washington corporation organized solely to act as trustee of a Massachusetts trust organized under the laws of the State of Washington.

You have requested our opinions as follows:

1.          That a Washington corporation organized solely to serve as trustee of a Massachusetts trust under the laws of the State of Washington which is owned by a trust company or bank with trust powers regulated by a state banking department or the OCC is not a “trust company,” as defined in RCW 30.04.020.

2.           That a Washington trust company may invest in all of the voting stock of a Washington corporation organized solely to act as trustee of a Massachusetts trust organized under the laws of the State of Washington, pursuant to RCW 30.04.125(8).

You represented to us as follows:

a.  _____ Lease Origination Trust is a Massachusetts trust organized under the laws of the State of Washington.  Issuance of transferable certificates evidencing beneficial interests in the Massachusetts trust, and any other securities issued by the Massachusetts trust, are subject to state and federal securities laws, and will be issued in compliance with those laws.

b.  All of the voting stock of _____ Lease Services, Inc. is now held by _____ Trust, and in the future will be owned by a trust company or bank with trust powers regulated by a state banking department or the OCC.  Prior to the transfer of that stock, it is owned by ______ Leasing, Inc., which is not a trust company or bank with trust powers regulated by a state banking department or the OCC.

c.  At the time the voting stock of _____ Lease Services, Inc. was transferred to _____ Trust, _____ Lease Services, Inc. held sixteen leases, as trustee, all of which were held for the benefit of ______ Lease Origination Trust, a Massachusetts trust, which continues to be the beneficiary of those trusts.

Based on your letter requesting our opinion, and upon your representations, it is our opinion that:

1.  A Washington corporation organized solely to serve as trustee of a Massachusetts trust under the laws of the State of Washington which is owned by a trust company or bank with trust powers regulated by a state banking department or the OCC is not a “trust company,” as defined in RCW 30.04.020.

2.  A Washington trust company may invest in all of the voting stock of a Washington corporation organized solely to act as trustee of a Massachusetts trust organized under the laws of the State of Washington, pursuant to RCW 30.04.125(8).


DOB OPINION NUMBER 96-005

Date: August 19, 1996

From: John L. Bley, Director, Department of Financial Institutions

Subject:
Concerning the powers of a Title 32 RCW savings bank relative to federal and state-chartered savings and loans and commercial banks.

You have requested an opinion from this office concerning the powers of a Title 32 RCW savings bank relative to federal and state-chartered savings and loans and commercial banks.  Subject to the limitations expressed herein, it is the Department’s opinion that Title 32 savings banks may exercise all the powers and authorities of savings and loan associations and commercial banks.

Taken as a whole, Title 32 RCW contains many provisions relating to powers.  As the Supreme Court of the state of Washington noted in 1979, Title 32 RCW savings banks also have all incidental powers that are “convenient and useful” to the exercise of their express powers.  Washington Bankers Association v. Washington Mutual Savings Bank, 92 Wn.2d 453 (1979).  Amendments of Title 32 RCW since 1979 have further broadened the powers of such savings banks, consistent with the broad legislative policy of enabling such institutions to adapt to the rapidly changing marketplace for financial services and to serve the public more effectively.  The cumulative effect of such provisions is to grant to Title 32 RCW savings banks essentially the same powers as federal and state-chartered savings and loans and commercial banks, among others.

For example, one such provision, RCW 32.08.142, has granted Title 32 RCW savings banks parity with federal savings banks and federally-chartered savings and loan associations since 1981.  In 1985, 1994, and 1996, the nature and scope of this grant of parity powers under the laws of Washington was extended, clarified and elaborated.  Under RCW 32.08.142 as most recently (effective on June 9, 1996) amended by 1996 Laws of Washington Chapter 2 (the “1996 Act”), Title 32 RCW savings banks have the powers and authorities that a federal savings bank had on July 28, 1995, or a subsequent date not later than June 9, 1996.  According to its plain language, this provision of Washington law is an authorization for mutual savings banks to exercise parity powers and authorities “in addition to all powers, express or implied, that a mutual savings bank has under the laws of this state.”  The full scope of such other powers and authorities is beyond the scope of this letter, but includes loan and investment powers such as authorizations for loans and investments under RCW 32.20.415 and RCW 32.20.460.

Another provision, RCW 32.08.146 (as amended by the 1996 Act), grants Title 32 RCW savings banks parity with the powers of future federal savings banks and their successors.  Under this provision, this grant of power is to become effective when the Director of the Department of Financial Institutions makes certain findings.

Yet another provision, RCW 32.08.140(15), authorizes a Title 32 RCW savings bank to “exercise any other power or authority permissible under applicable state or federal law exercised by other savings banks or by savings and loan associations with branches in Washington” under certain circumstances.  Although the primary purpose of the 1996 Act was to establish new guidelines for interstate banking in Washington, the plain language of this section includes Title 33 savings institutions.  Moreover, a legislative objective, evident in several powers provisions of the 1996 Act, is to prepare Washington state-chartered savings banks for interstate competition with their bank and non-bank competitors.  The exercise of powers and authorities permissible under Title 33 RCW is entirely consistent with this legislative objective.  Accordingly, it is my conclusion that the powers granted under RCW 32.08.140(15) include powers exercised by Title 33 RCW savings and loan associations, as well as powers exercised by foreign savings and loan associations with branches in Washington, if the other requirements of RCW 32.08.140(15) are satisfied.

Although RCW 32.08.140(15) grants only powers that have actually been exercised, the extent of such grant is not limited “to the extent that” a competing institution exercises such powers.  Therefore, any actual exercise of powers at any time by a competing institution may be a sufficient basis for the exercise of such powers by Title 32 savings banks.

Another provision of the 1996 Act, RCW 32.08.140(17), specifically empowers Title 32 RCW savings banks to “exercise the powers and authorities that may be carried on by a subsidiary of the mutual savings bank that has been determined to be a prudent investment pursuant to RCW 32.20.380.”  The provision previously discussed, RCW 32.08.140(15), overlaps with RCW 32.08.140(17), except to the extent that the former authorizes Title 32 RCW savings banks to exercise powers or authorities of a savings institution that would not be a prudent investment pursuant to RCW 32.20.380.  Cƒ. RCW 32.20.445 (authorizing investment in stock of federally insured savings institutions, without requiring that such investment be prudent).

The requirement that such powers be the kind of powers that may be exercised by a subsidiary in which a Title 32 RCW savings bank may prudently invest is the only limitation in RCW 32.08.140(17).  This provision does not require, for example, that power in question belong to a subsidiary in which the Title 32 RCW savings bank has actually invested, but only that the power in question “may” be exercised by a subsidiary of the kind that is a prudent investment under RCW 32.20.380.  The grant in RCW 32.08.140(17) is cumulative with the grants in various other provisions of the law of Washington, such as RCW 32.20.415 and RCW 32.20.460, that grant powers and authorities to Title 32 RCW savings banks.

In exercising any power under RCW 32.08.140(17), however, a Title 32 RCW savings bank may not conduct its activities in an unsafe or unsound manner.  The Department of Financial Institutions (“DFI”) will review activities conducted pursuant to RCW 32.08.140(17) on a case-by-case basis.  Consistent with safety and soundness, in such review the DFI will determine whether such activities are being conducted in compliance with applicable laws and regulations.  Imprudent concentrations of risk may be subject to criticism in a report of examination, and may result in a lower composite CAMEL rating.Finally, if such activities lower the CAMEL rating to an unacceptable level, supervisory action limiting such activities will result.

This policy appears prudent in that it focuses regulatory attention on institutions that abuse these broad powers and authorities but affords well-run institutions an opportunity to serve more effectively the consuming public.

Should you have any questions concerning this letter, please contact the undersigned.


DOB OPINION NUMBER 96-006

Date: September 6, 1996

From: John L. Bley, Director, Department of Financial Institutions

Subject:
Concerning sales of Prepaid Telephone Cards

This letter responds to your request for an opinion of the Washington Department of Financial Institutions (the “Department”) concerning the ability of ______ Bank (“Bank”), a savings bank chartered under Title 32 RCW, to market and sell prepaid telephone cards on the same terms allowed for federal savings banks.  As discussed below, it is the Department’s opinion that Bank may market and sell prepaid telephone cards as allowed for federal savings banks.

I. Background

Bank proposes to enter into an agreement with a company that purchases telephone services from long distance carriers at bulk rates and resells these services to the general public (the “Phone Company”).  Under the agreement, the Phone Company would provide prepaid telephone cards to Bank, and Bank, as agent for the Phone Company, would market and sell the cards to its customers at set prices.  Bank’s marketing activities would include mailing notices to its customers informing them of the availability of the cards, and posting advertisements at Bank’s retail offices.  Bank would remit sales proceeds to the Phone Company, less a commission equal to a percentage of the sales proceeds.

The telephone cards would provide the cardholding customer with access to a specified number of long distance “units,” with each unit representing a period of long distance calling time.  Cardholders would access long distance telephone service through any touch tone phone by dialing the Phone Company’s toll-free telephone number.  The toll-free number would connect the cardholder to the Phone Company’s computer system which prompts the customer to enter a unique account number preprinted on the card and the desired telephone number to be called.  The computer would place the call and deduct an appropriate amount from the cardholder’s account balance.

II. Discussion

In a letter dated August 19, 1996, addressed to ___________ (the ___ Letter”), the Department concluded that Title 32 RCW savings banks have “essentially the same powers as federal and state-chartered savings and loans and commercial banks, among others.”  The Department reached this conclusion based on its review of Title 32 and a relevant decision of the Supreme Court of the State of Washington.  It is not necessary in this letter to repeat the analysis of the ___ Letter.

You have forwarded to me a copy of a letter from the Office of Thrift Supervision (the “OTS”) dated August 29, 1996, in which the OTS confirmed under existing law that a federal savings bank may market and sell prepaid telephone cards as agent in the manner described above.  The laws of the United States relating to federal savings banks have not been amended in material respects since June 9, 1996.  Accordingly, I find that the ability to market and sell such cards in such manner was among the powers and authorities of federal savings banks as of June 9, 1996.

Under RCW 32.08.142 as amended effective June 9, 1996, Title 32 savings banks have the powers and authorities that a federal mutual savings bank has as of June 9, 1996.  In accord with RCW 32.08.142 and the ____ Letter, we conclude that Bank may also market and sell prepaid telephone cards as described above.


DOB OPINION NUMBER 96-007

Date: September 19, 1996

From: John L. Bley, Director, Department of Financial Institutions

Subject:
Ruling With Respect to Trust Assets Held by Trust Company Taken Over By the Director of Financial Institutions.

You have requested an opinion from Mr. Zachary as follows:

In the event that the Director of the Department of Financial Institutions (the “Director”) exercises his authority to take possession of a trust company in the case of insolvency, will the Director use assets in segregated accounts held in trust by the trust company, as trustee under a trust agreement, to satisfy obligations owing to the creditors of the trust company which obligations do not arise from the trust company’s exercises of its rights or duties as trustee with respect to the trust assets?

 You have asked us to assume the following:

  1. Acme Trust Company (“Acme”) serves as trustee of the Smith Family Trust and holds the Smith Family Trust assets in trust in segregated accounts (the “Trust Assets”);
  2. Acme has obligations owing to creditors (“Creditors”) which obligations are unrelated to and do not grow out of Acme’s duties or rights as trustee of the Smith Family Trust;
  3. The Director takes possession of Acme pursuant to its authority under RCW 30.44 et seq.; and,
  4. The Director establishes a plan by which it will satisfy the Creditors of Acme.

Based on your letter requesting our opinion, and upon the facts you have asked us to assume, it is our opinion that:

Upon taking possession of a trust company pursuant to his statutory authority, the Director would not and could not take trust assets held by the trust company as trustee in a segregated trust account and apply such trust assets to satisfy obligations owing to creditors of the trust company, provided that the obligations do not arise out of the trust company’s duties as trustee of the trust assets.


DOB OPINION NUMBER 96-008

Date: November 1, 1996

From: John L. Bley, Director, Department of Financial Institutions

Subject:
A Washington Corporation organized solely to serve as trustee of a Massachusetts trust under the laws of the state of Washington is not a “trust company.”

You have requested our opinion as follows:

That a Washington corporation organized solely to serve as trustee of a Massachusetts trust under the laws of the state of Washington is not a “trust company,” as defined in RCW 30.04.020.

You represented to us as follows:

  1. _____ Lease Origination Trust is a Massachusetts trust organized under the laws of the state of Washington.  Issuance of transferable certificates evidencing beneficial interests in the Massachusetts trust, and any other securities issued by the Massachusetts trust, are subject to state and federal laws, and will be issued in compliance with those laws.
  2.  ______ Lease Services, Inc. is a Washington corporation organized solely to be the trustee of ______ Lease Origination Trust.

Based on your letter requesting our opinion, and upon your representations, it is our opinion that a Washington corporation organized solely to serve as trustee of a Massachusetts trust under the laws of the state of Washington is not a “trust company” as defined in RCW 30.04.020.


DOB OPINION NUMBER 96-009

Date: November 20, 1996

From: Unknown (“B”)

Subject:
Concerning the breadth of savings bank powers under amended RCW Title 32, specifically whether a Bank could invest, as an equity investor, in income producing real property, and whether it would have authority to put as much as its entire lending portfolio into business banking loans, without changing its charter.

Thank you for providing us a copy of the August 19, 1996 letter from John L. Bley, Washington’s Director of Department of Financial Institutions, to _______, President of _______.  The subject matter of the letter concerns the breadth of savings bank powers under amended RCW Title 32.

The letter contains a detailed analysis of several bases upon which the Director has concluded that savings banks chartered under Title 32 “may exercise all the powers and authorities of savings and loan associations and commercial banks.”  We concur with the Director’s legal analysis and believe that you may properly regard your charter as having this breadth of authority.I know this is of interest to you as you approach certain strategic planning consideration which you are likely to face over the next few months.

You have specifically asked us to consider:

  1. Whether ______ Bank could invest, as an equity investor, in income producing real property such as mobile home parks; and
  2. If _______ Bank pursues commercial lending activities common to commercial banks, would it have authority to put as much as its entire lending portfolio into business banking loans, without changing its charter.

Real Estate Investments

It is quite possible that the analysis of Director Bley’s letter would provide additional authority for your making real estate investments.  This would be based upon the equalization of your authority with the authority allowed to a subsidiary of a bank.  This is subpart (17) of amended RCW 32.08.140.  However, concerning real estate investments, there appears to be sufficient and direct authority under RCW 32.20.285 for any such investments you are likely to make.  This statute, RCW 32.20.285, permits your institution to invest in “real estate, improved or unimproved, and its fixtures and equipment, as a savings bank shall purchase either alone or with others or through ownership of interest in entities holding such real estate.”  It includes the authority to “rent, lease, sell, and otherwise deal in such property, the same as any other owner thereof.”  The investment total amount under this particular section is not to exceed 20% of a mutual savings bank’s funds.  As defined in RCW 32.20.010, the reference to “its funds” includes deposits, the guaranty fund, income from either of these funds, and the principal balance of outstanding capital notes or capital debentures.  For a converted savings bank, it is likely that your capital which is shareholder equity is substituted for guaranty fund.  In any event, your deposits are such that this direct authority is likely to encompass any real estate investment you would consider making.Overall prudence, and safety and soundness would apply to any such investments.  This is consistent with the analysis is the Director’s August 19 letter.

Extent of Commercial Loans

In addressing the breadth of your authority to make commercial loans, I will put aside the implications of the Community Reinvestment Act (“CRA”) and other statutes and regulations which may imply a need to serve consumers.  I understand your question to be whether you could devote the institution’s lending efforts to commercial loans to the full extent a commercial bank could do so.

It is my belief that you do have such authority, and that this conclusion is fully consistent with Director Bley’s August 19 letter, and the analysis reflected in it.

We note that the powers and authorities described in RCW 32.08.140 are independent of each other, and none is intended to express a percentage limitation or other diversification requirement.  Therefore, when the Director has concluded that the new subparagraphs of RCW 32.08.140, as well as the convenient and useful incidental powers authority, include the power to exercise all powers and authorities of commercial banks, it is also a conclusion that such powers and authorities may be exercised to the full extent that such powers and authorities could be exercised by a commercial bank.

If a different conclusion were reached, the principal purpose of amending RCW 32.08.140 would be frustrated.  It is my understanding the legislature intended to broaden substantially the authority of mutual savings banks in order to make this charter a viable charter in future competitive situations anticipated under interstate banking.  If your charter were limited to a certain percent of exercising those powers and authorities, this purpose would not be realized.  The temptation would be there for you and other holders of the charter to convert your charters in order to broaden your authorities and powers and to establish the needed certainty of authority for any degree of planning.

Therefore, while your authority under prior statutes, before the 1996 amendments, would have limited your commercial lending activity to a certain percent of your loans overall, it is our conclusion that such a limitation is immaterial in view of the additional authority given  to you by the 1996 amendments to exercise all powers and authorities available to commercial banks.

Again, we would agree with the analysis in Director Bley’s letter that safety and soundness principles would continue to apply and that your principal regulator could, in certain circumstances, influence the degree to which the bank decides to pursue commercial lending based upon reasonable regulatory considerations including the experience of available personnel, capital adequacy and the like.

Because of the newness of the 1996 amendments, you may wish to share a copy of this letter with Director Bley to see if he disagrees with our conclusion with respect to the percentage of commercial loans analysis.  You are certainly authorized to do so and, if you and Director Bley would wish it, we would gladly participate in any meeting or conversation to discuss the subject.


DOB OPINION NUMBER 96-010

Date: December 30, 1996

From: John L. Bley, Director, Department of Financial Institutions

Subject:
Regarding certain powers and authorities of Title 32 savings banks.

By letter dated November 7, 1996 you asked us to review a letter from attorney _______ dated November 1, 1996 regarding certain powers and authorities of Title 32 savings banks.  The focus of ______’s letter concerns the broad authority granted Title 32 savings banks by the 1996 legislature.

______’s focuses in two areas: principal investments in real property and commercial lending activities.  ______ concludes that as a result of the 1996 amendments, a Title 32 savings bank may conduct such authorities subject to prudent regulatory safety and soundness standards.  We concur in this opinion.  This letter focuses solely on applicable state banking law.  You are reminded that Section 24 of the Federal Deposit Insurance Act continues to apply to powers and authorities not authorized by national banks where the bank is not acting as agent.

Should you have any questions, please contact the undersigned.