83-2

February 1, 1983

Dear Mr. _________:
This is in reply to your letter of January 6, 1983.
In our view, the Banking Law does not prohibit _________ from engaging in the business of dealing in municipal securities so long as the Bank limits its dealings in accordance with the restrictions set forth in Financial Code Sections 1335 and 1336 and so long as the Bank conducts its dealings in a safe and sound manner. Financial Code Section 1335, as amended by Section 10 of Chapter 1196 of the statutes of 1982, provides that a state bank may purchase for its own account only those securities in which in the informed opinion of the bank it is prudent to invest the funds of its depositors. Section 1336, as amended by Section 11, of Chapter 1196, provides that, subject to specified exceptions, a state bank may not invest an amount exceeding 15 percent of its share holders’ equity in the securities of any one obligor or maker; the exceptions include obligations of the State of California and obligations of local agencies and districts of the State of California having the power, without limit as your rate or amount, to levy property taxes to pay principal and interest on such obligations. To the extent that the bank’ in dealing in municipal securities, takes a position in (i.e., purchases for its own account) such securities, the bank must comply with Sections 1335 and 1336.
Also, in our view, the Banking Law does not prohibit the bank from providing discount securities brokerage services to its customers (i.e., buying and selling securities for the account of its customers but not dealing in or otherwise purchasing such securities for its own account), so long as the bark provides such services in a safe and sound manner.
In the case of dealing in municipal securities as well as in the case of providing discount securities brokerage services, the Bank should consult with its counsel regarding laws and regulations other than the Banking Law.
It is requested that, before commencing to deal in municipal securities or to provide discount securities brokerage services, the Bank submit to us its business plans for engaging in such activities so that we may review the business plans) for compliance with standards of safe and sound banking practice. Please contact our San Diego office for instructions on submitting the business plans.
Very truly yours,
HAROLD D. DOYLE
Acting Superintendent of Banks
By
JAMES F. CARRIG
Chief Counsel
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