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X-9676 Reg. H-6 INTERPRETATION OF LAW OR REGULATION (Copies to be sent to all Federal Reserve banks) July 50, 1936. Mr. E. C. Kill, Assistant Federal Reserve Agent, Federal Reserve Bank of Philadelphia, Philadelphia, Pennsylvania. Dear Mr. Hill: This refers to your letter of June 20, 1956, in which you have called attention to the fact that, during 1954 and the early part of 1955, certain trust companies in your district were admitted to membership in the Federal Reserve System subject to a condition of membership which, without specifying any exceptions, prohibits them from engaging in the business of acting as agent in the purchase and sale of real estate, or of acting as agent for others in the renting of real estate, while in the case of other trust companies more recently admitted to membership the Board has prescribed the following condition of membership: "Such bank shall not, except to the extent usually necessary in the transaction of a commercial banking or trust business, directly or indirectly, engage in the business of dealing in real estate or other properties, either for its own account or as agent for others, or of acting as agent for others in the renting of real estate, in the collection of rents thereon, or in care, custody and management of real or personal property, * * * ." (Underscoring supplied) You have inquired whether the exception contained in the above quoted condition of membership may be considered as being X-9676 Reg. H-6 -2- applicable to the trust companies which have accepted a condition of membership in which such an exception was not specifically made. The latter condition of membership was not intended to preclude a member State bank from engaging in real estate operations of the kind referred to therein if such operations are considered to be usually necessary in the transaction of a commercial banking or trust business, and the Board has ruled that, under a similar condition of membership which was prescribed for a member State bank in another State, the bank is not prohibited from renting, selling or disposing of real estate in connection with the administration of trusts in which it is authorised to act. In the circumstances, the Board feels that all State member banks in your district subject to a condition of membership covering their real estate operations which does not contain the exception referred to above may be considered as having the benefit of such exception. You have also requested advice as to whether this exception is applicable to a case in which a trust company subject to the condition of membership enters into an agreement to act as custodian and agent, whereby it will collect and account for the income on certain securities deposited with it, and will have the care, custody and management of two parcels of real estate on which it will collect the rentals and pay the taxes. You have explained that, while you do not have sufficient information in this case definitely to indicate the relative importance of the management of the securities in comparison 100 X-9676 Reg. H-6 -3- with the management of the real estate, there are many trust companies in your district which have entered into trust agreements of this kind, and that the activities engaged in thereunder constitute an important part of the trust business handled by such institutions. It is the view of the Board that where an agreement of this kind represents a bona fide fiduciary undertaking, the management of the real estate and collection of rents being an incident to the administration of the trust, and such an agreement does not represent merely an undertaking to carry on a real estate business of the kind described in the condition of membership, the type of relationship involved is one which it is contemplated would come within the exception under discussion. Very truly yours, (Signed) Chester Morrill Chester Morrill, Secretary.
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