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~- <br />issued out of state but which can be exercised at an affiliate or <br />subsidiary bank located in-state." (Page 4) <br />I examined the operative terms and definitions in the rule, the <br />Statement and the letter, and found the following. The term <br />affiliate in this instance, means associated with another in <br />subordinate relationship. The term subsidiary means having stock <br />owned by another company. The letter of credit offered by PBR <br />indicates that Norwest Bank, Colorado and Nationsbank of Florida <br />have a "reciprocal correspondent relationship". Reciprocal means <br />given mutually or performed by both sides. Correspondent means a <br />firm having regular business relations with another, especially at <br />a distance. Further the cover letter issued by Norwest Bank of <br />Denver indicates that they have "confirmed" the Nationsbank letter <br />of credit. Rod Uhrich indicated that a confirmation of an out of <br />state letter of credit by an in-state bank was as good as having <br />the letter issued in state. Based on this research I believe that <br />the letter of credit offered by Nationsbank and confirmed by <br />Norwest Bank, Colorado may not meet the letter of the regulation <br />but certainly meets the spirit of the regulation. Based on that <br />determination I suggest that we should accept the letter of credit <br />pending normal approval processes to be conducted by Debbie. <br />The letter of credit describes the process which will occur and the <br />responsibilities of the DMG, Norwest and Nationsbank in the event <br />of forfeiture under this letter of credit. This description <br />clearly illustrates that Norwest will act as an agent for <br />Nationsbank and be reimbursed, while Nationsbank has caused the <br />letter of credit and the agent/issuer relationship between the two <br />banks to be created. Based on the relationship and <br />responsibilities described in the letter of credit it further <br />appears that Norwest will act as an affiliate of Nationsbank. <br />The letter of credit, including the reciprocal correspondent <br />relationship between Nationsbank and Norwest, is in compliance with <br />Rule 3.02 and is one example of an acceptable instrument under the <br />exception clause of the rule. <br />Steve Brown of the AGO has taken a legal view of the operative <br />terms and does not believe that Norwest and Nationsbank have an <br />affiliate or subsidiary relationship. While I do not dispute <br />Steve's findings I do not believe that our decision should be based <br />on strict adherence to those two terms in the regulation. The <br />regulation was crafted with the ultimate goal of requiring a pay- <br />out in Colorado. This letter of credit allows for that. A <br />financial expert has indicated that confirmation by a local bank <br />guarantees that. I therefore, believe that we should accept this <br />letter of credit as meeting the goal and spirit of the regulation. <br />cc: Steve Brown, AGO <br />