99-14

May 25, 1999

Re: Armed Forces Bank, National Association – Branching Into California

Dear M __________:

This is in response to your letter of May 7, 1999. Your letter asked whether the three banking facilities established by _________ on military bases in California pursuant to 12 USC § 90 are viewed as branches that ___________ already maintains in California for purposes of Section 3824(a)(3) of the California Financial Code, so as to enable ___________ to establish a de novo branch in California under 12 USC § 36.

The federal courts have consistently held that banking facilities established by national banks pursuant to 12 USC § 90 are not branch banks for purposes of state laws limiting branch banking, but are, instead, arms or agencies of the federal government. See, United States v. Papworth, 156 F.Supp. 842 (1957), affirmed on other grounds, 5 Cir., 256 F.2d 125, certiorari denied 358 P.S. 854, 79 S.Ct. 85, 3 L.Ed.2d 235, rehearing denied 358 U.S. 914, 79 S.Ct. 239, 3 L.Ed.2d 235; State of Tex. ex rel. Falkner v. National Bank of Commerce of San Antonio, Tex. (1961), 290 F.2d 229, certiorari denied 82 S.Ct. 55, 368 U.S. 832, 7 L.Ed.2d 35; What are branch banks?, 23 ALR 3d 683.

Thus, the facilities in question are not branches of ___________ in California for purposes of Section 3824(a)(3) of the California Financial Code, and, in our view, ___________ may not establish a de novo branch in California pursuant to 12 USC § 36. Pursuant to 12 USC Sections 36 and 1831u and California Financial Code Section 3824, ___________ may establish a branch in California only by means of acquiring a whole existing California bank.

If you have any questions concerning this matter, please feel free to contact me at (415) 263-8512.

Very truly yours,