Colorado

Mexico. Nert..

Allen. Dat association. the Mode Business pee.. aŭopie I the States o. Alaska, Arkansas, Montana Nebraska Net Urego.. Inods isian, South Dakota, Temesser Texas U Lili Virginia. Washington Wisconsi. Wyoming and the Distrie C Columbia, an It has been substalila!! adopIOL in the states of Abant Connecticut Louisiana, Maryland, Massas chusetts. Nev dersen, New York, North Carolina, and South Carolina.

Of these two groups ( stules, the transacting business exemptions in three states Mississippi. Nev Jersey, and New York, are narrower tal most of the others ail uc no specifically reier to creating evidences 0 Gebis all sempit interests therem. The Mississippi exempton is express, mite, to investments in nonoperating minera, interest- mage outside tue stuit.

The Mode. Basiness Corporation. Aet Annotated, lists an additiona, group of states where foreign corporations are permitted to iena money en, enforce semitric provisions oz. 1ock, remí estate Withou qualifying. Those states inridge Arizom., Fioridu, Hawaii, idane, Liinois, Kansas, Michigan. Feder. Housing Administration an.. Veterans Adminis tration ioans Oly Missouri. Nevada. Ohio, Oklahoma, and West Virginia. MBCA Annotated 1959 ed. 1.577; 1966 Supp, p. 182 183

in addition, California has the broad provision noted above. Corne ration Code, Sers, 6450-52; Minnesota has a specia. provision applicable to savings and ioan associations organized in an adjoining state, and Fennsylvania nas a special provision in respect to loans and security (PSA. Tite 15, Sec. 1007).

Six States, Delaware, Indiana. Kentucky, Maine, New Hampshire. and Vermont, do not appear to have any comparable provisions in respect to foreign corporations making ioans secured by local real

estate.

The "transacting business" exemptions in general corporation laws are not necessarily decisive of the status of the exempted activities for tax purposes and with few exceptions these statutes do not make any reference to tax laws. One exception is in the California Corporation Code, Sec. 6452, which does provide for tax exemption. The Nebraska law expressly states that the corporation qualification standards do not establish standards for those activities which may subject a foreign corporation to taxation; the North Dakota and Pennsylvania statutes provide that these standards are not necessarily the standards governing taxation, and the Tennessee statute declares that the corporation law activity standards relate solely to qualification. However, where a tax is imposed on or in respect to the conduct of business activities in a state, these statutory definitions relating to the transaction of business for qualification purposes probably do have some bearing on the application of the tax laws.

made to businesses by member banks of the Federal Reserve System outstanding at that time, totaling $30.8 billion, were made to out-ofstate borrowers.1 Member banks then accounted for more than 90 percent of the business loans outstanding at all commercial banks; and the percentage of out-of-state loans increased with the size of the bank. Thus, member banks with deposits of under $100 million made less than 8 percent of their business loans to out-of-state borrowers, while banks with deposits of $1 billion or more made 44 per cent of such loans out-of-State.

Since October 1955, not only has the outstanding volume of business loans quadrupled, but also the ratio of out-of-state lending is believed to have increased appreciably, particularly at large banks. Moreover, multistate banks extend large amounts of other types of credit to out-of-state borrowers, including real estate mortgage credit and loans to nonbank financial institutions. Thus, the larger banks currently make or participate in substantial amounts of out-of-state loans and financing arrangements covering customers in virtually every State in the Union.3

While the major part of the lending and financing activities of multistate banks is in the form of direct extensions of credit to out-of-state as well as local customers, an appreciable part of bank lending to business involves some kind of participation or joint arrangement with other banks. The patterns of activity of the banks involved in loans made to out-of-state customers directly and under participation arrangements naturally vary. We consider first the loans made directly by the multistate banks without any participation.

The initial contact with the multistate bank loan customer may, of course, have been made in any number of ways-by request by the customer to the bank at its home office in person, by telephone, or by mail. On the other side, it may result from solicitation by the bank through advertising in trade and other journals, or by personal visits by a representative of the bank to the customer's place of business. The larger banks regularly send officers to the States in which they have a substantial volume of loan business; contact is maintained with the customer, and new loan business may be generated in this manner. Some large banks in recent years have been adertising that their loan officers are organized into divisions according to industrial classification, such as aviation, oil and gas, electronics, etc. Such advertisements appear regularly in national trade publications, and at times in the popular press. The suggestion is that a customer relationship with the bank will be beneficial to the borrower, because this source of expertise can be utilized by the borrower as an aid to making sounder business decisions. It is often stressed that the bank's experts will make an on-site inspection of the customer's operations, regardless of their location, in order that they may better counsel the customer on his general credit needs. These activities also provide the bank with information useful in its decision-making processes.

1 This summary is based on unpublished data from a survey made by the Federal Reserve System and reported in part in "Business Loans of Member Banks", Federal Reserve Bulletin, April 1956, p. 327.

2 This statement is based on conversations with staff of the Division of Research and Statistics of the Federal Reserve Board.

3 See the facts concerning First National City Bank of New York in "Report on the National Bank Tax Act," p. 13, submitted by First National City Bank to the Board of Governors.