Traditionally, the Office of the Comptroller of the Currency
(OCC) did not require a national bank seeking to engage in
non-depository, trust-only activities (a "trust-only
bank") to obtain Federal Deposit Insurance Corporation (FDIC)
insurance as a prerequisite to granting it a charter. Recently,
however, the OCC changed its position; today, a trust-only bank
must obtain FDIC insurance in order to be granted a charter. This
change in policy, which is designed to ensure that the OCC is not
forced to act as receiver for a failed trust-only bank, impacts the
available options for entities that seek to charter a trust-only
bank, particularly due to its interplay with provisions of the
The rationale underlying the OCC's change in policy is
grounded in the responsibilities that would fall to the OCC if a
trust-only bank without FDIC insurance failed. In such a situation,
the OCC would be forced to act as receiver of the failed trust-only
bank. But the position of the Comptroller of the Currency sworn
into office in 2012, Thomas J. Curry, is that the OCC is not
structured to act as a receiver. By requiring FDIC insurance for
trust-only banks, the OCC ensured that it will not be forced to act
as a receiver. That role will fall to the FDIC, an organization
that is better structured to serve as receiver of failed banks.
The interplay between the OCC's change in policy and the
Dodd-Frank Act guarantees that no new trust-only banks owned or
controlled by commercial firms can be chartered prior to July 22,
2013. Dodd-Frank imposed a moratorium on the provision of FDIC
insurance for trust-only banks owned or controlled by commercial
firms for three years following the date of its enactment, which
moratorium expires July 21, 2013. The moratorium coupled with the
OCC's new stance that trust-only banks must have FDIC insurance
means that a charter for a trust-only bank owned or controlled by a
commercial firm cannot be granted until such entities can receive
FDIC insurance beginning July 22, 2013.
Although the OCC's change in policy affects federal banking
law, state banking laws are not affected. State charters remain
available for trust-only banks without the requirement that the
chartering entity obtain FDIC insurance and serve as a viable
alternative to trust-only banks chartered at the national level.
Delaware, in particular, provides many advantages to entities that
charter as trust-only banks in its state. Some advantages include
the ability to structure trusts to avoid certain income taxes,
rules that are more flexible than those of other states, favorable
directed trust and decanting statutes and rigid enforcement of
spendthrift clauses to protect assets from beneficiaries'
creditors. Many trust-only banks have chartered in Delaware to take
advantage of the benefits of its banking laws; a full list of such
chartered banks is available at: http://banking.delaware.gov/reports/annual/Annual%20Report%202011.pdf.
Additional explanation for change in
policy.The OCC has assumed former Office of the
Thrift Supervision (OTS) responsibilities, which include oversight
of federal savings banks (FSBs). The OTS previously required
deposit insurance for trust-only FSBs, so the OCC's change in
policy could be explained as adopting the OTS's stance on
deposit insurance for trust-only charters.
Issuances of new FDIC insurance.Not much may change with respect to the issuance of new FDIC
insurance even after the expiration of the moratorium imposed by
Dodd-Frank. The FDIC has been reluctant to grant new FDIC insurance
and appears likely to retain this position.
Existing trust banks without FDIC
insurance.Indications suggest that the OCC's
change in policy will not be extended to require existing
trust-only banks previously chartered without FDIC insurance to now
obtain FDIC insurance. But questions persist regarding the new
policy in other circumstances; for example, will the OCC impose the
FDIC insurance requirement on existing trust banks that undergo a
change in ownership, by merger or otherwise?
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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