Vermont § 12603 - Merchant banks

§ 12603. Merchant banks

• (a) A merchant bank is a financial institution organized under the provisions of this
  title whose activities are generally limited to lending and investing. Deposit activity
  is prohibited. Unless otherwise indicated in this chapter, a merchant bank has all
  the powers, duties, and obligations of a financial institution under this title. As
  one of the purposes of merchant banks is to provide needed capital or investments
  to businesses that may be impermissible or imprudent for depository financial institutions,
  its lending and investment activities are less restricted. Except as provided in this
  section, a merchant bank has all the powers of and is entitled to engage in the business
  of a financial institution, including powers with respect to investments, loans, and
  transactions. (b) A merchant bank may not solicit, receive, or accept money or its equivalent on deposit
  as a regular business within the meaning of subdivision 11101(11) of this title or engage in deposit-like activities as determined by the Commissioner. A merchant
  bank may deposit cash, whether constituting principal or income, in any financial
  institution, whether within or outside this State, if the account is held either in
  the name of the customer to which the cash belongs or in the name of the merchant
  bank and is composed entirely of cash belonging to the customer, the respective contributions
  of which are reflected in the books and records of the merchant bank. (c) A merchant bank may issue drafts drawn on itself in the form of treasurer’s or cashier’s
  checks. (d) No merchant bank shall engage in business as a merchant bank in this State without
  first obtaining a certificate of authority from the Commissioner pursuant to this
  section and sections 11703 and 12103 of this title. (e) The organizational documents of a merchant bank that are filed with the Secretary
  of State shall contain the following statement: “This organization is subject to the
  Vermont law on merchant banks, 8 V.S.A. § 12603, and does not have the power to solicit, receive, or accept money or its equivalent
  on deposit.” This statement in the organizational documents of a merchant bank may
  not be amended. (f) The minimum amount of initial capital for a merchant bank is $1,000,000.00, all of
  which shall be common stock or equity interest in the merchant bank. A merchant bank
  may use qualified subordinated debt or senior debt as part of its capital structure
  above $1,000,000.00, provided that the amount of subordinated debt or senior debt
  used as capital above $1,000,000.00 is not greater than the amount of common stock
  or equity interest used as capital above $1,000,000.00. The Commissioner, in his or
  her discretion, may increase the minimum capital required for a merchant bank. (g) A merchant bank shall maintain minimum capital in accordance with section 14104 of this title. The Commissioner may establish different standards for merchant banks than for other
  financial institutions organized under this title. The minimum capital standards for
  a merchant bank may not be less than a level equal to 150 percent of the tier 1 risk-based
  capital and 150 percent of total risk-based capital established from time to time
  by the Board of Governors of the Federal Reserve System for a well-capitalized bank. (h) A merchant bank may convert to any other type of investor-owned financial institution
  pursuant to chapter 206 of this title. (i) Notwithstanding section 14103 of this title, a merchant bank may use as a part of its name the word or words “bank,” “banker,”
  or “banking,” or the plural of or any abbreviations of those words. (j) At least 30 days prior to the establishment of any office for the transaction of its
  business, a merchant bank shall notify the Commissioner. (k) The following provisions of this title are inapplicable to merchant banks: sections
  12201 and 14110; subsection 14301(d); chapters 203 and 205; and chapter 204, subchapter
  2. (l) Prior to making a loan, the terms of any loans by a merchant bank to or investments
  by a merchant bank shall be disclosed to the governing body of the merchant bank when
  the loan is to any of the following: (1) a person who owns 25 percent or more of the merchant bank’s common stock or similar
  equity capital; (2) a member of the governing body of the merchant bank; (3) an executive officer or manager of the merchant bank; or (4) a company, 25 percent of the voting shares or other similar voting equity of which
  is owned by a person or entity listed in subdivisions (1) through (3) of this subsection. (m) Any acquisition or change in control of 10 percent or more of the common stock or
  equity interests in a merchant bank shall be subject to the prior approval by the
  Commissioner. The acquiring person shall file an application with the Commissioner
  for approval. The application shall be subject to the provisions of chapter 201, subchapter
  7 of this title. (n) The Commissioner shall examine the merchant bank and any person who controls it to
  the extent necessary to determine the soundness and viability of the merchant bank
  in the same manner as required by chapter 201, subchapter 5 of this title. (o) A merchant bank shall include on all its advertising a prominent disclosure that deposits
  are not accepted by a merchant bank. (p) For purposes of this section, “control” means that a person: (1) directly, indirectly, or acting through another person owns, controls, or has power
  to vote 10 percent or more of any class of equity interest of the merchant bank; (2) controls in any manner the election of a majority of the directors of the merchant
  bank; or (3) directly or indirectly exercises a controlling influence over the management or policies
  of the merchant bank. (q) A merchant bank formed and authorized under this chapter shall: (1) maintain its principal place of business in this State; (2) appoint a registered agent to accept service of process and to otherwise act on its
  behalf in this State, provided that whenever such registered agent cannot with reasonable
  diligence be found at the Vermont registered office of the merchant bank, the Secretary
  of State shall be an agent of such merchant bank upon whom any process, notice, or
  demand may be served; (3) hold at least one meeting of its governing body in this State each year; and (4) have at least one Vermont resident as a member of its governing body. (Added 1999, No. 153 (Adj. Sess.), § 2, eff. Jan. 1, 2001; amended 2011, No. 21, § 11a; 2011, No. 78 (Adj. Sess.), § 12, eff. April 2, 2012; 2021, No. 105 (Adj. Sess.), § 290, eff. July 1, 2022.)