J. Michael Jacobs, Esq.
Dear Mr. Jacobs:
This responds to your letters dated June 25 and August 13, 2002, requesting an opinion that the nonbanking activities described below are permissible for a financial holding company ("FHC") to conduct under the Bank Holding Company Act ("BHC Act") (12 U.S.C. § 1841 et seq.) and the Board's Regulation Y (12 C.F.R. part 225). First Pryor Bancorporation, Pryor, Oklahoma ("First Pryor"), is a bank holding company that has made an effective election to become an FHC.
We understand from your correspondence and conversations with Board staff that First Pryor seeks to establish a new subsidiary ("Subsidiary") that would (i) prepare title abstracts on U.S. registered aircraft; (ii) provide escrow services with respect to funds and documentation in connection with the sale or financing of aircraft; and (iii) sell title insurance as agent. The Board previously has determined that bank holding companies may provide escrow services for funds and related documents,1 and the BHC Act, as amended by the Gramm-Leach-Bliley Act, permits bank holding companies that have made an effective election to become an FHC to sell any type of insurance, including title insurance, in any state.2
You have indicated that the aircraft title abstracting activities of Subsidiary would be limited to reporting factual information concerning the ownership history of the relevant aircraft and the existence of liens or encumbrances affecting the aircraft. Subsidiary would obtain this information by performing a title search of records maintained by the Federal Aviation Administration ("FAA") in Oklahoma City, Oklahoma.3 Subsidiary would then prepare a written report, known as an "abstract of title," describing the factual information located by the title search concerning the existing title owner of the aircraft, previous transfers of the aircraft's title, and the existence of any liens or encumbrances affecting title to the aircraft. You have represented that Subsidiary would not itself insure any customer against defects in the title of any aircraft, guarantee any aircraft title, or provide any certification with respect to an aircraft title.4
In The First National Company, the Board determined that engaging in title abstracting activities with respect to real property is an activity that is "so closely related to banking or managing or controlling banks as to be a proper incident thereto" within the meaning of section 4(c)(8) of the BHC Act.5 In reaching this determination the Board noted that banks often rely on real estate title abstracts in connection with their mortgage lending activities in order to ensure that the bank will have a secured interest in the real estate acting as collateral for the loan. On this basis, the Board found that title abstracting for real estate is an activity that is integrally related to the mortgage lending activities of banks.6
The title abstracting activities proposed to be conducted by Subsidiary for U.S. registered aircraft are essentially identical to the title abstracting activities approved by the Board for real estate in the FNC Order. You also have indicated that approximately 70 to 80 percent of all title abstracts for U.S.-registered aircraft are requested in connection with a loan or other financing transaction involving the aircraft.
Based on these and other facts, Legal Division staff believes that the aircraft title abstracting proposed to be conducted by Subsidiary and described in this letter are within the scope of the title abstracting activities previously authorized by the Board. This opinion is limited solely to the activities described above, and does not address the permissibility of, nor does it authorize First Pryor to engage in, any other activities. Any material change in the activities described above may require reconsideration of this opinion and should be communicated immediately to Board staff. If you have any questions concerning this letter, please contact Kieran J. Fallon, Senior Counsel, at (202) 452-5270, or Gerald Tsai, Attorney, at (202) 452-2300.
President & CEO
First Pryority Bank
310 East Graham Avenue
P.O. Box 218
Pryor, Oklahoma 74361
(signed) J. Virgil Mattingly
J. Virgil Mattingly
cc: Federal Reserve Bank of Kansas City