July 9, 1992

Dear Mr. ________:

This is in response to your letter of November 8, 1991 and follows our subsequent telephone conversations.

Your letter seeks confirmation that neither Section 691 nor any other section of the California Financial Code (the “Financial Code”) requires a California state-chartered commercial bank to obtain approval of the Superintendent of Banks of the State of California (the “Superintendent”) prior to offering or selling its unsubordinated notes (the “Notes”). You described the Notes as general unsecured obligations of the bank, which will not be deposits insured by the Federal Deposit Insurance Corporation, and which will not be subordinated to other creditors or deposits of the bank except as provided in Section 3119.5 of the Financial Code. You indicated further that the Notes will not be issued in an amount which would cause the bank to exceed the limit specified in Section 1202 of the Financial Code.

Financial Code Section 691 provides: “No bank organized under the laws of this state shall offer or sell any security issued by it unless the superintendent has issued a permit authorizing such sale.” Subdivision (c) of Financial Code Section 690 defines the term “security” as, “. . . any stock, capital note, or debenture, or any warrant, right, or option to subscribe to or purchase any of the foregoing. n Accordingly, unless the Notes described in your letter can be characterized as “capital notes or debentures” as defined in Financial Code Section 690(c), prior approval of the Superintendent under Financial Code Section 691 is not required for their offer or sale.

Financial Code Section 670 provides that a California state chartered bank may issue “capital notes or debentures” which, “. . . shall be subordinate to the claims of creditors and depositors . . . .” In our view, the terms “capital note” and “debenture” used in Subdivision (c) of Section 690 refer to the type of security described in Section 670. The Notes described in your letter, which are subordinated only to deposits as provided by Financial Code Section 3119.5, but are not subordinated to the claims of other creditors, do not have all of the characteristics of subordination provided in Financial Code Section 670 and therefore are not securities as defined in Section 690.

Accordingly, in our view, approval pursuant to Financial Code Section 691 is not required prior to issuance of the Notes you described. However, we request that any such Notes be submitted to us for informal review prior to their offer and sale.

We express no opinion on any law, other than Division 1 of the Financial Code, which may relate to the Notes or to their offer or sale .

If you have any questions, please feel free to call me.

Very truly yours,

Superintendent of Banks


Senior Counsel


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