National banks with trust departments operating in several states may soon get a break on the cost of doing business.
The Office of the Comptroller of the Currency has issued a proposal that would allow banks to account for all trust operations at their headquarters rather than having to maintain separate books in each state they do business in.
Trust bankers see the OCC proposal - outlined in a Dec. 21 letter - as a welcome reprieve. Currently, national banks with trust operations in two or more states must maintain staffs in each state that do nothing but prepare for state examinations.
"It's a lot easier to run a business under a single regulatory roof," said David J. Kundert, chairman and chief executive officer of Banc One Corp.'s investment management and trust group.
Mr. Kundert believes that a relaxation of regulatory demands could help Banc One compete with nonbank investment managers that do not have to adhere to the same regulations as national banks.
"You need to level the playing field to compete with those kind of firms," Mr. Kundert said.
First Bank System Inc., Minneapolis, is also supportive of the proposal, according to a bank spokeswoman.
The OCC proposal, if enacted, would represent the first major revision of the agency's 32-year-old rule defining how fiduciary businesses can be conducted by national banks whose trust businesses are also subject to state regulations. The proposal comes on the heels of an OCC interpretive letter issued on Dec. 8 that allows national banks to offer trust services outside their home states without having to set up new branches.
"Much about the national banks fiduciary business has changed since (1963) including ... the structures and operational methods that banks use to deliver those services," reads the OCC notice.
While the OCC proposal would allow for accounting and business administration to be streamlined, that does not mean that banks could use a cookie cutter to deliver trust services to clients in different states.
The agency writes that case-by-case determinations would be made whether or not state laws regarding the conduct of trust relationships can be preempted by federal oversight.
"They have clearly opened the door to banks doing their administration on a uniform basis out of the headquarters state," said John P.C. Duncan, a partner at Jones, Day, Reavis & Pogue, which counsels banks on interstate issues.
But, Mr. Duncan observes that the OCC is making a distinction between streamlining bean-counts and implementing any standardized investment policies.
All 50 states have different "prudent investor" rules that govern what types of investments are acceptable and how they should be disclosed.
The OCC is inviting comment on how to minimize the differences among investment laws so national banks can operate on a uniform basis.
"We're dealing in a national environment now, and it's important that banks and customers both know what law applies," Mr. Duncan said.
State consumer interests and regulators have until Feb. 20 to submit comments to the OCC.
In the meantime, the affected banks are offering their support to the proposed regulation.
Banc One is a classic example of a banking company that stands to gain much from this OCC proposal. The institution would like to whittle down its far-flung banking operations to a single charter someday.
Banc One has 60 affiliate banks in 11 states, compared with 88 three years ago. In each state, there are three or four separately chartered business units that all have to be accounted for.
Other trust executives at banks with similar situations would welcome any opportunity to centralize the business.
"The current approach is encumbered by a variety of different regulations," said Daniel E. Klimas, KeyCorp's executive vice president for private banking and investing. "This new proposal may offer us a more economical way of offering those services," he added.
Though Mr. Klimas said he is supportive of the OCC proposal, he expects an onslaught of litigation from state regulators before anything is resolved.
Like Banc One, KeyCorp sees a clear benefit to consolidating the reporting of its segmented trust departments.
"We are supportive of anything that allows us to look at ourselves and run a business on a national basis instead of several independently," Mr. Klimas said.
