WASHINGTON - The Comptroller's office is proposing to revamp regulations governing national banks' fiduciary activities.

"The way that banks do business in this area has changed dramatically, but the rules governing fiduciary activities have not been overhauled since 1963," Julie L. Williams, the agency's chief counsel, said in an interview this week.

The proposal, which is slated to be published in the Dec. 21 Federal Register on Thursday, would abolish a number of restrictions on the way national banks pay trust customers withdrawing collective investment funds. Collective investment funds allow banks to pool their trust accounts, rather than investing the money in each account separately.

Currently, national banks are required to pay trust customers in cash or a proportional share of the investments in the fund or a combination of both. The proposal abolishes that requirement. Instead, the Comptroller's office would defer to state fiduciary laws, state courts, or the specific terms of the collective investment fund.

Ms. Williams said that a number of national banks have run into problems with the current rule because sometimes they are forced to sell illiquid investments such as real estate to satisfy an investor's demands. Banks may have to convert these investments into cash at depressed prices or make payments in proportional shares, which may be difficult to do, especially with real estate, she said.

The proposal also would ease regulations governing what federally chartered trust banks can do with a fiduciary's money while waiting to invest it.

Currently, a national bank may keep the funds in a deposit account if the institution secures the deposit with bank assets, such as government- backed securities.

Federally chartered trust banks, like other national banks, may deposit these funds in holding company affiliates. However, under the current rule, the affiliate bank may not provide the security assets for the trust bank. The Comptroller's office is proposing to allow the affiliate to do so, as long as it jibes with state laws.

"This would allow holding companies to use different affiliates the way they think is best to handle the awaiting funds," Ms. Williams said.

Additionally, the proposal would eliminate a rule barring one type of investment from representing more than 10% of one of these funds.

"This is very important, because the current limitations try, through regulation, to determine for banks what is prudent," said James McLaughlin, director of agency relations for the American Bankers Association. "There may be instances when it is appropriate for a given trust to have concentrations of more than 10% in these areas."

Finally, the Comptroller's office proposal would allow national banks that manage collective investment funds to delegate investment decisions to affiliated or unaffiliated advisors.

"This would allow national banks to delegate the oversight of certain investments to someone with greater expertise," Ms. Williams said.

Comment letters must be received by the Comptroller's office by Feb. 21.

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