§ 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.)