TO THE CHIEF EXECUTIVE OFFICER OF THE STATE CHARTERED BANK ADDRESSED:

RE: Travel Agency Business

The Superintendent of Banking has recently been asked whether a state chartered bank may lease a portion of its space to a travel agency. The question of whether a state chartered bank could operate a travel agency has also been raised. The policy of the Superintendent's office had prohibited the participation of state banks in travel agency business whether performed by the bank directly, by a subsidiary of the bank, or by an unaffiliated organization subject to a lease arrangement with the state bank.

The extent to which any commercial bank may directly or through any subsidiary offer travel-related services has been impacted by two court decisions during the 1970s. In the first case, the court ruled the operation of a travel agency business by a bank was not an incidental power necessary to conduct the business of banking. The decision in the second case basically prohibited the commercial bank from maintaining effective control or assuming any risks asso ciated with travel agency business operated by an apparent unaffiliated travel agency. The two court cases, however, did not address the receipt of profit by the two banks.

While the participation of national banks in travel agency business has been restricted by the decisions in the two cases, the Comptroller of the Currency has issued guidelines authorizing the leasing of excess space to a travel agency subject to certain restrictions. We have now reviewed our policy and have determined that, based upon Iowa Code Section 524.102(5) (1987), state banks should be granted competitive equality with national banks in the offering of travel-related services. Therefore, the following sets forth the Superintendent of Banking's policy as it relates to the participation of state banks in travel agency business:

State banks are prohibited from operating travel agency business either directly or through a subsidiary of the bank. However, a state bank may lease its excess space to a travel agency subject to the following conditions:

1) The state bank shall not enter into a partnership or joint venture with the travel agency.

2) The state bank shall not exercise any management control over the travel agency business.

3) The state bank shall not assume or indemnify any debts or liabilities of the travel agency.

4) For security purposes, the travel agency which leases space in the location where the state bank conducts its traditional core banking functions shall be in operation only during normal banking hours.

5) The travel agency shall be identified as a separate entity so that the public is aware the travel agency is not an affiliate of the state bank.

6) The relationship between the state bank and the travel agency shall be "arms-length," with no tying arrangements involved.

7) To avoid conflict of interest and self-dealing situations, the state bank shall be prohibited from leasing its space to any director, officer or employee of the state bank; an immediate family member of any director, officer or employee of the state bank; or a related interest of any director, officer or employee of the state bank.

Sincerely,

Edward L. Tubbs
Superintendent of Banking

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