Bank customers would be able to convert assets held in common trust funds without paying capital gains taxes under a bill passed by the Senate Tuesday.

The industry supports the measure because it would allow depositors to transfer these assets into easier-to-administer mutual funds.

The provision is part of a bill increasing the minimum wage and providing new tax breaks for small businesses. Common trusts are collective investments banks hold for estates, guardianships, and other trustee relationships.

Many state laws require that common trust funds be placed in conservative investments such as government securities. When owners withdraw trust assets to invest in higher yielding mutual funds, current federal law requires them to pay capital gains taxes first.

The common trust provision is not included in the House-approved version of the minimum wage/tax break bill. Lawmakers must meet to work out differences between the two bills before sending the package to the president.

The Senate bill contains other provisions beneficial to banks:

* Credit card debt and auto and home equity loans could be bundled and sold as a new type of instrument called a "financial asset securitization investment trust," or Fasit.

* Small financial institutions could structure themselves as "Subchapter S" corporations. By setting up as a Subchapter S corporation, a bank could pass along its income to stockholders without being taxed first.

* Individual retirement account contributions from nonworking spouses would be increased from $250 to $2,000.

The Fasit and Subchapter S provisions are included in the House bill.

Ms. Fisher said Fasits could become a booming business because it would give banks a way to sell common types of consumer debt. "This could be a sleeping giant," said Donna Fisher, director of tax and accounting policy for the American Bankers Association.

To pay for new tax breaks, the Senate bill also eliminates a 50% deduction on interest income from loans to employee stock ownership plans that hold a majority stake in their companies.

The Independent Bankers Association of America fought to preserve the deduction because it gives banks an incentive to finance employee buyouts. "We like everything in the bill except the ESOP provision," said Herb Spira, IBAA tax counsel.

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