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February 27, 2006

Re: Request for Permission to Accept Demand Deposits

Dear ________:

This responds to your letter dated February 22, 2006, by which you requested the Commissioner grant ________ Bank (the “Bank”) the authority to accept demand deposits under Financial Code Section 1411. The Commissioner must deny your request.

Financial Code Section 105.7 defines the “industrial banking business” as “making loans and acceptance of deposits” but specifically excludes the ability of industrial banks to accept demand deposits. You have asserted that Financial Code Section 1411 gives the Commissioner the power to authorize an industrial bank to accept demand deposits. We disagree. Section 1411 allows an industrial bank the power to accept deposits or certificates that are redeemable prior to their maturity date, subject to any order or regulation of the Commissioner, but does not grant, nor does it allow the Commissioner the power to grant, industrial banks the ability to accept demand deposits.

You are correct that there are three alternative exemptions the Bank can qualify under to be exempt from the provisions of the Bank Holding Company Act (the “BHCA”) under Section 2(c)(2)(H). You are asking the Department to accept any of the alternative exemptions in the BHCA. As we read California law, only one of those alternatives is applicable; the prohibition on the acceptance of demand deposits. Though for federal purposes the Bank may be exempt from the BHCA’s definition of “bank”, to be considered an industrial bank in California, an industrial bank may not accept demand deposits.

If accepting demand deposits is an important strategy for the Bank, you may wish to consider converting from an industrial bank to a commercial bank, which may accept demand deposits, pursuant to Financial Code Section 4920 et seq. We suggest the Bank seek legal counsel should it decide to covert to a commercial bank.

Very truly yours,

JAMES M. PATTEN

Senior Counsel

JMP:acp