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State Laws Authorizing National Banks to Exercise Trust Powers.

XI(k), 200. States in which national banks are authorized to exercise fiduciary powers.—

(a) The following States have enacted laws expressly authorizing national banks to exercise trust powers: Colorado, Indiana, Iowa, Ohio (trustee and registrar only, and then only when capital over $100,000), South Dakota, Vermont, Virginia, Washington (paid-up · capital of $50,000 necessary) (1915 Bulletin, p. 150; 1916 Bulletin, p. 523), Delaware (trustee, executor, administrator, and registrar of stocks and bonds) (1917 Bulletin, p. 528), Washington (national banks may exercise the powers of trust company under certain circumstances) (1917 Bulletin, p. 697), Georgia (national banks may act as trustee, executor, administrator, and registrar of stocks and bonds) (1917 Bulletin, p. 767).

(b) Pursuant to the opinion of counsel it has been determined that national banks may exercise trust powers in the following additional States, such exercise not being in contravention of State law: Alabama, Arizona, Arkansas, California (registrar only), Connecticut, Delaware, District of Columbia, Florida, Georgia, Idaho, Illinois, Kansas, Kentucky, Louisiana, Maine (trustee, executor, and registrar), Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire (trustee and registrar), New Jersey (if organized prior to March 24, 1899), New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, West Virginia, Wisconsin, Wyoming, Utah. 1916 Bulletin, p. 523.

XI(k), 201. National banks in New York, according to these opinions, might act as registrar of stocks and bonds but could not act as trustee, executor, or administrator. (It has since been decided, however, that national banks in New York may act in all the authorized capacities. See XI(k), 103.) 1917 Bulletin, p. 30; 1918 Bulletin,

p. 12.

Application for Trust Powers.

XI(k), 300. Conditions precedent to granting permits for the exercise of fiduciary powers under the provisions of section 11(k) set forth in some detail. (See also Regulation F, series of 1923, p. 131.) 1915 Bulletin, p. 308.

Exercise of Trust Powers by National Banks When Prohibited by State Law.

XI(k), 400. Under the provisions of section 11(k) as amended by the act of September 26, 1918, the Federal Reserve Board may properly permit any national bank to exercise any of the fiduciary powers authorized by that section, unless there is some express provision of the laws of the State in which such bank is located, which either directly or by necessary implication prohibits national

banks from exercising such powers and, even if there is such an express statute, the board may issue its permit, if any State bank, trust company, or other competing corporation in that State is permitted to exercise the powers applied for by the national bank. 1919 Bulletin, p. 363.

Capital and Surplus Requirements.

XI(k), 500. Where a State law requires a State bank to have a capital of not less than $125,000, a national bank having a capital of $50,000 and a surplus of $75,000 can not be granted trust powers, since surplus can not be construed to mean capital within the provisions of section 11(k). 1918 Bulletin, p. 1118; 1919 Bulletin, p. 53.

XI(k), 501. Capital required of national banks in Wisconsin.The law of Wisconsin, as amended by an act approved July 13, 1921, empowers State banks to exercise fiduciary powers, after obtaining authorization from the State banking conmissioner, but provides that no such authorization "shall be issued to any such bank having a capital less than the capital from time to time required by law of a national bank exercising fiduciary powers in the same place." Section 11(k) similarly prohibits the board from authorizing national banks to exercise fiduciary powers which have a capital and surplus less than the capital and surplus required by State law of competing State institutions. Under such circumstances, and in view of the fact that the amount of capital required by Wisconsin law for the organization of State banks is in no case greater than that required for the organization of national banks in places of similar size, the board has power to grant a fiduciary permit to any national bank in Wisconsin. The board is, however, vested with discretion in granting such permits, and in order to cooperate with the Wisconsin banking commissioner, whose policy is to permit only State banks having a minimum capital of $50,000 to exercise fiduciary powers, the board will, in the exercise of its discretion, decline to grant fiduciary permits to national banks in Wisconsin having a capital of less than that amount. 1922 Bulletin, p. 196.

Particular Trust Powers Authorized.

XI(k), 600. A national bank has no authority, under section 11 (k) to do a regular abstract business, whether or not it includes the guaranteeing of titles, although it may keep a set of abstract books for its own purpose. 1920 Bulletin, p. 385.

XI(k), 601. National banks as transfer agents.-National banks which have obtained the board's permission to act "in any other fiduciary capacity" may act as transfer agents, provided that competing State corporations are permitted to act in that capacity under the laws of the State in which the national bank is located. 1921 Bulletin, p. 545.

Administration of Trust Departments.

XI(k), 700. Deposit of securities to secure trust funds deposited in commercial department.-A receipt covering United States Liberty bonds issued by the Federal reserve bank and payable on demand without conditions to the trust department of a national bank, set aside in the trust department of that bank, is sufficient to comply with the provisions of section 11(k) with regard to collateral security, provided that the market value of the bonds equals at least the amount of the funds deposited by the trust department in the commercial department. 1919 Bulletin, p. 1156.

XI(k), 701. Bills receivable, loans or such paper as the Federal reserve bank may discount, are not readily marketable securities within the meaning of the board's Regulation F, series of 1919, and should not be considered eligible as collateral security for trust funds deposited in the commercial department of a national bank. 1920 Bulletin, p. 385.

XI(k), 702. A deposit of security with the State banking authorities as required by State law does not fulfill the requirements of section 11(k) that a national bank must deliver to its trust department the necessary securities before it may deposit any of its trust funds in its commercial department.

While trust funds must be invested in strict accordance with the terms of the trust instrument, where a trust instrument authorizes the bank, its officers or directors, to exercise discretion in the matter of investments, each particular investment need not be specifically approved by the board of directors. It is only necessary that the directors define the class of securities in which trust funds may be invested. 1920 Bulletin, p. 699.

XI(k), 703. Deposit of securities in trust department of national bank to secure trust funds deposited in commercial department.—The provision of section 11 (k), requiring securities to be deposited with the State authorities in lieu of bond for the protection of private or court trusts, is distinct and separate from the requirement in section 11(k) compelling the deposit of securities in the trust department before trust funds received by the trust department may be deposited in the commercial department of the national bank. 1921 Bulletin, p. 309.

XI(k), 704. Trust funds used in national bank's commercial department. A national bank acts as trustee under a corporate bond issue, and as such is depositary of the collateral security for the bonds. The trust agreement makes provision for a sale of the collateral under certain conditions, but requires the bank, in case of such sale, to hold the proceeds thereof as substituted security, or use them in retirement of the bonds. Part of the collateral was sold and the proceeds depos

ited in the bank's commercial department. It was ruled that those proceeds constituted trust funds and could be used in the bank's commercial department only upon the deposit of counter security in its trust department. Consideration of other circumstances under which similar deposits would constitute a deposit liability under section 19, rather than trust funds. 1921 Bulletin, p. 1435. (See XI(k), 705; XIX, 506-507.)

XI(k), 705. Certain considerations incident to use of trust funds---Distinction between trust funds and other deposits.-A national bank receiving trust funds may, if permitted by the terms of the trust, employ them commercially in two ways; it may transfer them to its own commercial department for use therein, as provided in section 11(k), or it may make a general deposit of the funds in another institution for the account of its trust department.

Funds received by a bank to meet a corporate debtor's maturing obligations may or may not constitute trust funds. If the bank acts as trustee under a deed of trust for the holders of the obligations which are to be paid, a presumption arises that the funds are trust funds. If the bank has no duty to the holders of the obligations, and no special duty with regard to handling the funds, except to pay the obligations when presented, the presumption would be that the transaction gave rise to an ordinary deposit liability.

In any event, all funds received by a bank in the course of its commercial or fiduciary business must be treated either as deposits against which reserves must be carried, or as trust funds subject to the ordinary restrictions and safeguards imposed upon the custody and use of trust funds. 1922 Bulletin, p. 572. (See XIX, 507.)

Miscellaneous.

XI(k), 800. Investment by national banks of their own funds.-The provisions of the national bank act and the provisions of the Federal reserve act relating to investments made by national banks of their own funds have no application to investment of funds held in trust and not belonging to the national banks. 1919 Bulletin, p. 143. (See XI(k), 803.)

XI(k), 801. A national bank located in Hawaii. The Federal Reserve Board may properly authorize national banks located in Hawaii to exercise the fiduciary powers authorized by section 11(k). 1919 Bulletin, p. 366.

XI(k), 802. Right of national banks in Missouri exercising trust powers to use the words "Trust Company" as part of the corporate title. Opinion of the United States District Court, Western Division, Western District of Missouri, rendered March 27, 1920, sustaining the right of a national bank in Missouri, which had received the

board's permission to act in fiduciary capacities, to use the words "Trust Company" as part of its corporate name with the approval of the Comptroller of the Currency, and to advertise that it is engaged in the business of a trust company, contrary to the provisions of a State statute. (Fidelity National Bank & Trust Co. v. Enright, 264 Fed. 236.) 1920 Bulletin, p. 497. (See also XI(k), 102.)

XI(k), 803. Real estate loans by national banks exercising trust powers. A national bank authorized by the board to exercise trust powers may not invest any of its own funds directly, or by subterfuge, in loans on real estate, except in accordance with the provisions of section 24 of the act. Trust funds held by a national bank as trustee, however, may be invested in loans on farm lands or real estate to the same extent as a State trust company would be authorized to invest under the laws of a State, if it were acting as trustee under the same instrument, without regard to the provisions of section 24. 1920 Bulletin, p. 949. (See XI(k), 800.)

XI(k), 804. Exercise of fiduciary powers by national banks outside of State where located. There is no provision in the Federal reserve act or the national bank act which would prevent a national bank having trust powers from exercising such powers in States other than that in which it is located. This question depends on the laws of the other States in which the powers are proposed to be exercised. Bulletin, p. 816.

SECTION 11(m).

Limitations Upon the Rediscount Power of Federal Reserve Banks.

1921

XI(m), 100. Rediscount of paper offered by State banks.-Section 11(m) authorizes Federal reserve banks to rediscount for member banks notes, drafts, and bills bearing the signature or endorsement of any one borrower "in excess of the amount" set forth in sections 9 and 13. While it is true that a Federal reserve bank may not under section 9 discount for a State bank any of the paper of any one borrower, if the State bank has made loans to that borrower in excess of 10 per cent, nevertheless under section 11 (m), a State member bank, irrespective of whether or not it has loaned in excess of 10 per cent to one borrower under his regular line of credit, may offer for rediscount with the Federal reserve bank paper of that borrower which is secured by Government obligations of the kinds specified in section 11(m), provided the aggregate of all rediscounts does not exceed 20 per cent of the member bank's capital and surplus. (NOTE.-The provisions of section 11(m) expired by limitation on Oct. 31, 1921.) 1919 Bulletin, p. 361; 1919 Bulletin, p. 1055. (See IX, 604; XIII-D, 100. See also secs. 9 and 13.)

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