ABA Blasts Proposal to Reveal Trust Profitability

The American Bankers Association is raising a red flag about a proposal by federal regulators that would require bank trust departments to disclose information about their profitability.

The trade group is concerned that the proposal to add a new schedule to the trust report that banks file every year itemizing trust income and expenses is a violation of their confidentiality.

The proposed addition of a new form, known as "schedule E," is an attempt by national examiners to uniformly measure the performance and risk associated with fiduciary activities.

The proposal was drafted by the Federal Financial Institutions Examinations Council, an interagency group of federal regulators that supervises federally insured depository institutions.

Regulators are calling for added scrutiny of trust departments as an increased emphasis on gathering and managing assets changes the map of the trust banking world. For example, trust assets under administration have grown 61%, to $10.6 trillion, over the five years leading to 1993.

Although some of the same information may already be gathered in the process of annual examinations, bank regulators have said they currently have no other source that provides the same data "in a consistent and timely manner."

But in a letter filed last month in response to the proposal, the ABA argued that the information collected could be used against its members in litigation.

"Our members feel quite strongly that competitors, banks or otherwise, should not be able to obtain profitability information about a particular trust department," wrote Sarah A. Miller, an ABA lawyer.

The American Bankers Association is the industry's leading voice, representing 90% of the commercial banking industry's total assets.

Fueling the bankers' opposition is a recent decision in the sixth circuit court of appeals to allow disclosure of confidential information as part of a derivatives litigation suit against Bankers Trust Co.

The information on Bankers Trust was apparently collected by the Federal Reserve as part of an examination. The court ruled that the respective information was factual, and thus admissible in court.

In her letter and in a recent telephone interview, Ms. Miller said that the ruling could open up the way for more litigation, on the theory that trust profitability information is also factual and thus admissible.

"Bankers have generally operated with the idea of a free flow of exchange between the examiners and themselves," Ms. Miller said. "But now, is this opinion going to have a chilling effect?"

Ms. Miller also questioned the fact that the new schedule did not account for the "sea change in bank trust departments."

The new form does not, for example, make any reference to mutual funds, which increasingly are being developed and offered through trust departments, according to Ms. Miller.

Ms. Miller, however, applauded some of the government's effort to understand the trust business. The Office of Comptroller of the Currency recently announced its intention to look more closely at the trust business, by way of focus groups and discussions with trust executives.

Moreover, the government argues that bankers should not worry about leakage of schedule E information, since it will not be information obtained through the examination process.

"We believe we ought to get the confidential status," said William R. Stanley, a supervisory trust analyst with the Board of Governors of the Federal Reserve System, a member of the interagency group that issued the proposal.

Mr. Stanley said that the way to make the schedule subpoena-proof is to make it exempt from any Freedom of Information request.

Even so, skepticism remains.

"If I were a bank, I would sure as anything resist it as well," said John Clark, a trust consultant in Beaverton, Ore.

"Not only is that layer of reporting an added nuisance, but the fact that we've already breached the confidentiality of that information tells me that there is probably more harm to be done by complying with this than there is good to be gained."

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