Ohio's top bank regulator plans to draft legislation this summer that would permit community banks to form and run joint trust companies.
State law currently prohibits the formation of independent trust companies. The proposal would allow a group of community banks to capitalize an independent trust company to serve their customers. It would also permit nonbanks to form trust companies.
A |Revenue Idea'
Many community banks don't offer trust services because they don't have the expertise or enough business to justify the overhead.
"I see it as something very positive," said Alison M. Meeks, Ohio's superintendent of banking. "It is another revenue idea that could make sense for the bankers."
Pamela Grandon, an attorney and examiner with the banking division, said a number of questions still have to be resolved. For example, is the investment allowable if banks don't control the trust company? Or, if banks are the owners, how many can hold a stake in the unit?
"What we don't want to have is a situation where the trust company is pulled by someone or some of the investors to favor their interest," she said.
Ms. Meeks said two community banks already have contacted the department about opening a trust unit, and she expects many more to follow if the legislation is adopted.
Jack Withee, senior trust officer with the $100 million-asset Orrville Savings Bank, said its management is not waiting. It filed an application with the state on Friday for trust powers.
"It would have been nice to have gone in with two or three other banks," Mr. Withee said.
Jeffrey Quayle, general counsel of the Ohio Bankers Association, said he has had conversations with a handful of community bankers who also are mulling the idea.
Mr. Quayle said the association has yet to endorse the plan, but it may take a position supporting it this summer.
"The association needs to make sure it has the support of the full industry," he said. "We haven't run it up the flagpole. It is premature to take the position."
Safe Haven for Customers'
John L. Hoffer, a trust consultant and a founder of Chicago-based Association for Independent Trust Companies, said if community banks can fund the start-up of an affiliated trust company, they could retain customers who normally would take their trust business to larger institutions.
"It is a safe haven for their customers," he said. "It is never going to steal that customer for loans."