A little-known 1987 federal law is driving a Boston investment company to consider divesting its trust subsidiary.

Eaton Vance Corp., a $456 million-asset mutual fund manager, is exploring a spinoff of its 77.3% ownership in Investors Bank and Trust Company to Eaton's shareholders.

Eaton wants to free its $128 million-asset banking subsidiary from a regulation that has hindered its growth and forced it to hand off more than $400 million in lines of credit to its competitors. The move would also allow the bank to return greater value to Eaton's shareholders than it can as a restricted subsidiary, officials said.

After the divestiture, Investors would form a separate holding company and conduct an initial public offering to raise further capital for growth, said William M. Steul, Eaton's chief financial officer.

The transaction is still subject to state and federal regulatory approval. Eaton officials also want to ensure that it can be tax-free before proceeding, Mr. Steul said.

"The process of spinning off to shareholders is something that's relatively common in the corporate world, (but) I haven't heard of it much in the bank holding company context," said Michael Greenspan, banking attorney with Thompson & Mitchell in Washington.

The 1987 Competitive Equality Banking Act limits banking subsidiaries of nonbank holding companies to 7% growth in balance sheet assets in any 12- month period. The limit doesn't apply to assets under management.

Also, the law restricted the bank from offering new products, thus preventing Investors from providing commercial banking services to its clients.

That forced Investors, which manages $75 billion in assets, to pass $400 million in commercial lines of credit for its clients to competitors such as State Street Boston Corp. and Bank of New York Co. The bank has also had to place hundreds of millions of dollars in managed accounts into overnight products at competitors.

Still, Mr. Greenspan said he was surprised that Eaton wasn't waiting to see if Congress breaks down the federal barriers between banking and commerce, since that would allow Eaton to operate Investors without restrictions.

But, he said, if Eaton doesn't think Congress will act, "what they're doing would make a lot of sense."

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