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FEDERAL RESERVE BANK
OF NEW YORK

N

Circular No. 2068
May 31, 1940

REGULATION F OF THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
RELATING TO TRUST POWERS OF NATIONAL BANKS
As Amended Effective June 1, 1940

To each Member Bank in the
Second Federal Reserve District:

Enclosed is a printed copy of Regulation F, as amended effective June 1, 1940,
issued by the Board of Governors of the Federal Reserve System, relating to
''Trust Powers of National Banks." The amendments to the regulation since the
last printing in the form as revised effective November 20, 1939, are all contained
in section 17, entitled "Common Trust Funds." For your information we quote
below the text of a statement for the press with respect to such amendments, which
was released by the Board of Governors on May 6, 1940:
The Board, effective June 1, 1940, has approved amendments to its Regulation F,
relating to the administration of trusts by national banks, to permit the operation of
Common Trust Funds which are invested principally in mortgages. The Board for
some time has had under consideration a proposal by representatives of member banks
for such amendments to its regulation and the proposal was approved by representatives of banking associations. It was represented to the Board that smaller trust
institutions may not have facilities for operating Common Trust Funds composed
principally of securities, the operation of which is now permitted by the Board's Regulation F, but would have facilities for operating Common Trust Funds composed
principally of mortgages. Under the amendments to Regulation F Common Trust
Funds composed principally of mortgages may be operated only in States in which
there is statutory authority for such operation, and these amendments will permit
Funds operated under such statutes to obtain certain tax exemptions which are granted
by the Federal revenue laws to Common Trust Funds operated in accordance with
the Board's regulations.
Any inquiry relating to Regulation F should be addressed to the Federal Reserve
Bank of New York. Additional copies of the regulation may be obtained upon request.




GEORGE L. HARRISON,

President.

BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM

TRUST POWERS OF NATIONAL BANKS

REGULATION F

This Regulation as printed herewith is in the form
as amended effective June 1, 1940




INQUIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should he addressed to the
Federal Reserve bank of the district in which the inquiry arises.




CONTENTS
Page
AUTHORITY FOR REGULATION
SEC. 1. APPLICATIONS
SEC. 2. CONSIDERATION OP APPLICATIONS
SEC. 3. CONSOLIDATION OF TWO OR MORE NATIONAL BANKS
SEC. 4. CONSOLIDATION OF STATE BANK WITH NATIONAL BANK
SEC. 5. CHANGE OF NAMB
SEC. 6. TRUST DEPARTMENT AND MANAGEMENT

(a)
(6)
(c)
(d)
(e)
(/)
SEC.

1
1
1
2
3
3
4

Separate trust departmentDirectors' supervision of trust department
Trust investment committee.....
Executive officer
Competent legal counsel
Principles of trust institutions

4
4
4
4
5
5

7. BOOKS AND ACCOUNTS

5

(a) In general
—
(b) Record of pending litigation

5
5

SEC. 8. EXAMINATIONS OF TRUST DEPARTMENT
SEC. 9. TRUST FUNDS AWAITING INVESTMENT OR DISTRIBUTION

5
6

(a) In general
(b) Use in conduct of business of trustee bank

6
6

SEC. 10. INVESTMENT OF TRUST FUNDS

7

(a) Private trusts
(b) Court trusts.
__
(c) Collective investment of trust funds

7
7
8

SEC. 11. PURCHASE OR SALE OF TRUST ASSETS TO OR FROM TRUSTEE BANK OR
ITS DIRECTORS, OFFICERS OR EMPLOYEES

(a) Obligations of trustee bank or its directors, officers, etc.—
(b) Sale or transfer of trust assets to trustee bank or its directors, officers, etc
(c) Dealings between trust accounts
_„ _ _
_
SEC. 12. CUSTODY OF TRUST SECURITIES AND INVESTMENTS
SEC. 13. DEPOSIT OF SECURITIES WITH STATE AUTHORITIES
SEC. 14. COMPENSATION OF BANK

9
10

SEC. 15. INSOLVENCY OR VOLUNTARY LIQUIDATION OF BANK

10

10
10

_
_

SEC. 16. SURRENDER OF TRUST POWERS

(a)
(b)
(c)
(d)
(a)
(b)
(c)
(d)

10

Procedure
Words "Trust Company" as part of bank's title
'.
Examination of trust department
Certificate of Board of Governors of the Federal Reserve
System

SEC. 17. COMMON TRUST FUNDS

_




10
11
11
11
12

In general
....
Common Trust Funds for investment of small amounts.—
Common Trust Funds for general investment.
Common Trust Funds composed principally of mortgages
(Mortgage Investment Funds)

SEC. 18. BOARD FORMS
APPENDIX

8
9
9
9
9

._

(a) In general
(b) Officer or employee of bank as co-fiduciary
(a) Insolvency _
(b) Voluntary liquidation

8

8

_

12
13
13
18
23
25

REGULATION F
As amended effective June 1, 1940

TRUST POWERS OF NATIONAL BANKS
AUTHORITY FOR REGULATION

This regulation is issued under authority of the provisions of section
11 (k) of the Federal Reserve Act, as amended, which, together with
related provisions of law, are published in the Appendix hereto.
SECTION 1. APPLICATIONS

A national bank desiring to exercise any or all of the powers authorized by section 11 (k) of the Federal Reserve Act, as amended, shall
make application to the Board of Governors of the Federal Reserve
System for a special permit authorizing such national bank to exercise
such powers. If the applying bank is not authorized to exercise any of
such powers, the application should be made on Form 61; and if the
applying bank is authorized to exercise one or more but not all of such
powers, the application should be made on Form 61b.
In the case of the organization of a new national bank, the conversion of a State bank or trust company into a national bank, or the
consolidation of two or more national banks or of a State bank or
trust company with a national bank under the charter of the latter,
when none of the national banks involved in such consolidations is
authorized to exercise trust powers, application for such a permit may
be made in advance on behalf of the new, converted or consolidated
national bank, and the permit may be issued simultaneously with the
consummation of such organization, conversion or consolidation. Such
application may be made by the organizers in the case of a new
national bank, by the State bank or trust company in the case of a
conversion, and by the national bank the charter of which is to be
retained in the case of a consolidation.
Each application made under the provisions of this section shall be
executed and forwarded in duplicate, together with duplicate copies of
any documents containing any information submitted with the application, to the Federal Reserve bank of the district in which the applying bank is located.
SECTION 2. CONSIDERATION OF APPLICATIONS

In passing upon an application for permission to exercise the fiduciary powers authorized by section 11 (k) of the Federal Reserve Act,
1



2

REGULATION F

as amended, the Board of Governors of the Federal Reserve System
will give special consideration to the following matters:
(a) Whether, under the provisions of section 11 (k) of the Federal Reserve Act, as amended, the bank has sufficient capital and
surplus to render it eligible to receive permission to exercise the
fiduciary powers applied for and whether the granting of any or
all of such powers would be in contravention of State or local law;
(b) The needs of the community for trust service of the kind
applied for and the probable volume of such trust business available to the bank;
(c) The general condition of the bank, particularly the adequacy of its net capital and surplus funds in relation to the character and condition of its assets and to its deposit liabilities and
other corporate responsibilities, including the proposed exercise of
trust powers;
(d) The general character and ability of the management of
the bank*
(e) The nature of the supervision to be given to the proposed
trust activities, including the qualifications and experience of the
members of the proposed trust investment committee;
(/) The qualifications, experience and character of the proposed executive officer or officers of the trust department;
(g) Whether the bank has available competent legal counsel to
advise and pass upon trust matters whenever necessary; and
(h) Any other facts and circumstances that seem to it proper.
SECTION 3. CONSOLIDATION OF TWO OR MORE NATIONAL BANKS

Where two or more national banks consolidate under the provisions
of the Act of Congress approved November 7, 1918,1 as amended, and
any one of such banks has, prior to such consolidation, received a
permit from the Board of Governors of the Federal Reserve System to
act in fiduciary capacities which is in force at the time of the consolidation, the rights existing under such permit pass by operation of
law to the consolidated bank and the consolidated bank may act in
such fiduciary capacities in the same manner and to the same extent
as the bank to which such permit was originally issued; and no new
application to continue to act in such capacities is necessary. However, in order that the records of the consolidated bank may be complete and that it may have convenient evidence of its right to exercise
trust powers, the Board, upon receipt of advice from the Comptroller
of the Currency that the consolidation has been consummated, will
1
Applicable provisions of the Act of Congress approved November 7, 1918, as amended, are
printed in the Appendix to this regulation.




REGULATION F

3

issue a certificate to the consolidated bank showing its right to exercise the trust powers theretofore granted by the Board to any of the
national banks taking part in the consolidation.
SECTION 4. CONSOLIDATION OF STATE BANK WITH NATIONAL BANK

Section 3 of the Act of Congress approved November 7, 1918,2 as
amended, authorizes any bank, trust company, savings bank, or other
banking institution incorporated under the laws of any State or in the
District of Columbia to be consolidated directly with a national bank
located in the same State, county, city, town, or village under the
charter of such national bank, and provides in effect that, when such
consolidation is consummated, the consolidated national bank shall
succeed to the specific fiduciary appointments, designations and nominations of the State institution at the time of the consolidation. It
is not necessary for the national bank to have a permit from the
Board of Governors of the Federal Reserve System in order to administer the specific trusts to which it thus succeeds, but the provision
docs not confer upon the consolidated national bank the right to act
generally in. fiduciary capacities or to undertake any other trust business. Unless the national bank already has a permit from the Board
of Governors- of the Federal Reserve System to act in fiduciary capacities which is in force at the time of the consolidation, it will be
necessary for the bank to obtain such a permit before undertaking to
act generally in fiduciary capacities or to accept any other trust
business.
SECTION 5. CHANGE OF NAME

If a national bank has received a permit from the Board of Governors of the Federal Reserve System to act in fiduciary capacities
and subsequently, while the permit is in force, changes its name under
the provisions of the Act of Congress approved May 1, 1886,3 it is not
necessary for the bank to make a new application to continue to act
in such capacities. However, in order that the records of the bank
may be complete and that it may have convenient evidence of its right
to exercise trust powers under its new name, the Board, upon receipt
of advice from the Comptroller of the Currency that such change in
name has been legally effected, will issue a certificate to it under such
new name evidencing its right to exercise the trust powers previously
granted to it under its old name.
2
Section 3 of the Act of Congress approved November 7, 1918, as amended, is printed in the
Appendix to this regulation.
s
The applicable provisions of the Act of Congress approved May 1, 1886, are printed in the
Appendix to this regulation.




4

REGULATION F
SECTION 6. TRUST DEPARTMENT AND MANAGEMENT

(a) Separate trust department.—Every national bank which obtains
permission from the Board of Governors of the Federal Reserve System
to act in a fiduciary capacity shall, before undertaking to act in such
capacity, establish a trust department which shall be separate and
apart from every other department of the bank.
(b) Directors' supervision of trust department.—The board of
directors is responsible for the investment of trust funds by the bank,
the disposition of trust investments, the supervision of the trust department, the determination of the policies of such department and
for the review of the actions of all committees appointed by the board
of directors for the conduct of the trust department. The acceptance
of all trusts shall be approved by the board of directors or a committee appointed by such board, and the closing out or relinquishment of all trusts shall be approved or ratified by the board of directors or a committee appointed by such board; and such committee
or committees shall be composed of capable and experienced officers
or directors of the bank. Any such approval or ratification shall be
recorded in the minutes of the board of directors or of such committee
as the case may be.
(c) Trust investment committee.—Before any such national bank
undertakes to act in any fiduciary capacity, the board of directors of
the bank shall appoint a trust investment committee which shall be
composed of at least three members, who shall be capable and experienced officers or directors of the bank.4 All investments of trust funds
by the trust department of every such national bank shall be made,
retained or disposed of only with the approval of the trust investment
committee; and such committee shall keep minutes of all its meetings,
showing the disposition of all matters considered and passed upon by
it. Such committee shall, at least once during each period of twelve
months, review all the assets held in or for each fiduciary account to
determine their safety and current value and the advisability of retaining or disposing of them; and a report of all such reviews, together
with the action taken as a result thereof, shall be noted in the minutes
of the trust investment committee. Such committee may have such
additional duties relating to the trust department as may be prescribed
by the board of directors.
(d) Executive officer.—Before any such national bank undertakes
to act in any fiduciary capacity, its trust department shall be placed
4
It is contemplated that there shall be a committee the members of which shall have a continuity of responsibility for the discharge of the duties of the committee. However, alternates
appointed by the board of directors may serve in place of regular members of the committee
who are unable to serve on account of vacations, illness, or other good and sufficient reasons if
the minutes of the committee show the reason for the service of such alternate in place of the
regular member.




REGULATION F

5

under the management and immediate supervision of an executive
officer or officers qualified and competent to administer trusts, and the
duties of such officer or officers shall be prescribed by the board of
directors of the bank. Such duties shall be evidenced by the by-laws
of the bank or by a resolution duly adopted by and entered in the
minutes of the board of directors. All officers and other persons taking
part in the operation of the trust department shall be adequately
bonded.
(e) Competent legal counsel.—Every such national bank shall
designate, employ or retain competent legal counsel who shall be
readily available to pass upon trust matters and to advise with the
bank and its trust department; but the bank shall not engage in the
practice of law.
(/) Principles of trust institutions.—Every such national bank shall
conform to sound principles in the operation of its trust department.5
SECTION 7. BOOKS AND ACCOUNTS

(a) In general.—Every national bank which has received permission from the Board of Governors of the Federal Reserve System to
exercise fiduciary powers shall keep the books and records of the trust
department separate and distinct from other records of the bank. AH
trust accounts opened shall be so kept as to enable the national bank
to furnish such information or reports with respect thereto as may be
required by the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. The records of the trust department shall contain full information relating to each trust.
(b) Record of pending litigation.—Every such national bank shall
keep an adequate record of all litigation pending against it in connection with its administration of any trust.
SECTION 8. EXAMINATIONS OF TRUST DEPARTMENT

In addition to examinations by examiners appointed by the CompIroller of the Currency 6 or designated by the Board of Governors of
the Federal Reserve System, a committee of directors, exclusive of any
active officers of the bank, shall, at least once during each period of
twelve months, make suitable audits of the trust department or cause
8
The Statement of Principles of Trust Institutions approved by the Executive Council of the
American Bankers Association under date of April 11, 1933, is included in the Appendix to this
regulation and is commended to banks operating trust departments.
9
Section ll(k) of the Federal Reserve Act, as amended- by the Banking Act of 1935, approved
August 23, 1935, provides that "The State banking authorities may have access to reports of
examination made by the Comptroller of the Currency in so far as such reports relate to the
trust department of such bank, but nothing in this Act shall be construed as authorizing the
State banking authorities to examine the books, records, and assets of such bank."
While this provision denies to the State banking authorities the right to examine the trust
department of any national bank without the bank's consent, it does not prohibit the bank from
permitting an inspection of its records by any one it desires.




6

REGULATION F

suitable audits of such department to be made by auditors responsible
only to the board of directors, and shall, likewise at least once during
each period of twelve months, ascertain by thorough examination made
or caused to be made by such committee—
(1) Whether a review of all the assets in each trust as to their
safety and current value and the advisability of retaining or disposing of them has been made in accordance with section 6(c) of
this regulation;
(2) Whether trust funds awaiting investment or distribution
have been held uninvested or undistributed any longer than was
reasonably necessary.
Such committee shall promptly make a full report of such audits and
examination, in writing, to the board of directors of the bank, together
with a recommendation as to the action, if any, which may be necessary to correct any unsatisfactory conditions. The board of directors
shall give due consideration to such report and recommendation,
together with the latest report of examination by the Comptroller of
the Currency or examiners designated by the Board of Governors of
the Federal Reserve System 7 furnished to the bank, and shall take
such steps as are appropriate to correct any criticized matters. A
report of the audits and examination required under this section,
together with the action taken thereon, shall be noted in the minutes
of the board of directors; and such report shall be made a part of the
records of the bank.
SECTION 9. TRUST FUNDS AWAITING INVESTMENT OR DISTRIBUTION

(a) In general.—Funds received or held by a national bank as
fiduciary awaiting investment or distribution shall not be held uninvested or undistributed by the bank any longer than is reasonably
necessary.
(6) Use in conduct of business of trustee bank.—Funds received or
held by a national bank as fiduciary awaiting investment or distribution shall not be used by the bank in the conduct of its business, unless
the bank, under authorization by its board of directors, first delivers
to the trust department, as collateral security—
(1) Bonds, notes, bills, certificates of indebtedness or other
direct obligations of the United States, or obligations fully guaranteed by the United States as to principal and interest; or
7
This does not relieve the board of directors of any responsibility for prompt consideration of,
and action on, matters criticized in the latest report of examination by the Comptroller of the
Currency or the Board of Governors of the Federal Reserve System furnished to the bank oi
for the prompt consideration and action on any matter coming to the attention of the board of
directors from any other source which requires action for the protection of parties at interest.




REGULATION F

<

(2) Other readily marketable securities of the classes in which
State trust companies or State banks exercising trust powers are
authorized or permitted to invest trust funds under the laws of
the State in which such national bank is located; or
(3) Other readily marketable securities of the classes defined
as "investment securities" pursuant to section 5136 of the Revised
Statutes of the United States, as amended.8
The securities so deposited as collateral shall be owned by the national bank and shall at all times be at least equal in market value to
the amount of the trust funds so used in the conduct of the bank's
business.9
SECTION 10. INVESTMENT OF TRUST FUNDS

(a) Private trusts.—Funds received or held by a national bank as
fiduciary shall, with the approval of the trust investment committee
and subject to the rules of law applicable to fiduciaries, be invested
promptly and in strict accordance with the will, deed or other instrument creating the trust. When the instrument creating the trust contains provisions expressly authorizing the bank, its officers or its directors to exercise a discretion in the matter, funds received or held
in trust shall be invested only with the approval of the trust investment
committee. When such instrument does not specify the character or
class of investments to be made and does not expressly vest in the
bank, its officers or its directors a discretion in the matter, funds
received or held in trust shall be invested, with the approval of the
trust investment committee, in any investments in which corporate or
individual fiduciaries in the State in which the bank is acting may
lawfully invest.
(6) Court trusts.—A national bank acting in any fiduciary capacity
under appointment by a court of competent jurisdiction shall, subject
to the supervision of the trust investment committee, make all invest8
Section 5136 of the Revised Statutes of the United States, as amended, provides that as used
in that section "the term 'investment securities' shall mean marketable obligations evidencing
indebtedness of any person, copartnership, association, or corporation in the form of bonds,
notes, and/or debentures commonly known as investment securities under such further definition
of the term 'investment securities' as may by regulation be prescribed by the Comptroller of
the Currency"; and a copy of the regulation prescribed by the Comptroller under the authority
of section 5136 may be obtained upon request made to his office.
• Section ll(k) of the Federal Reserve Act, as amended, requires that the national bank shall
set aside in the trust department "United States bonds or other securities approved by the Board
of Governors of the Federal Reserve System." This subsection of this regulation is intended as
a general approval by the Board of all securities which comply with the requirements thereof
and the Board will not give specific approval to any particular securities.
If a national bank desires to substitute securities for securities already deposited in the trust
department as collateral for trust funds used in the conduct of the business of such bank, such
a substitution may be made provided the substituted securities comply with the requirements of
this subsection and the substituted securities and other securities so deposited as collateral at all
times are at least equal in market value to the amount of trust funds so used in the conduct
of the bank's business.




8

REGULATION F

ments of funds received or held by it in trust under an order of that
court, and copies of all such orders shall be filed and preserved with
the records of the trust department of the bank. If the court order
vests a discretion in the bank to invest funds received or held by it in
trust, or if, under the laws of the State in which the bank is acting,
corporate fiduciaries appointed by the court are permitted to exercise
such a discretion, the bank, with the approval of the trust investment
committee, shall invest such funds in any investments in which corporate or individual fiduciaries in the State in which the bank is acting
may lawfully invest.
(c) Collective investment of trust 10 funds.—Funds received or held
by a national bank as fiduciary shall not be invested collectively "
except as permitted in section 17 of this regulation.
SECTION 11. PURCHASE OR SALE OF TRUST ASSETS TO OR FROM TRUSTEE BANK
OR ITS DIRECTORS. OFFICERS OR EMPLOYEES «

(a) Obligations of trustee bank or its directors, officers, etc.—Funds
received or held by a national bank as fiduciary shall not be invested
in stock or obligations of, or property acquired from, the bank or its
directors, officers, or employees, or their interests,13 or in stock or obligations of, or property acquired from, affiliates of the bank.
(6) Sale or transfer of trust assets to trustee bank or its directors,
officers, etc.—Trust assets shall not be sold or transferred to the national bank, to its directors, officers, or employees, or their interests,13
or to affiliates of the bank, except that, in cases in which the bank has
been advised by its counsel in writing that it has incurred a contingent
or potential liability to a trust and desires to relieve itself from such
liability, such a sale or transfer may be made with the approval of the
board of directors; provided that in all such cases the bank, upon the
consummation of the sale or transfer, shall reimburse the trust involved
in cash or other acceptable assets.
10
Unless the context otherwise indicates, the term "trust," as used in this section or in any
other part of this regulation, refers to any fiduciary relationship which a national bank is
authorized to enter into under the provisions of section ll(k) of the Federal Reserve Act.
11
This does not prevent the bank from investing the funds of several trusts in a single real
estate loan of the kind which could be made by the bank under the provisions of section 24 of
the Federal Reserve Act, as amended, if the bank owns no participation in the loan and has no
interest therein except in its capacity as fiduciary.
12
The requirements of this section shall not be deemed to prohibit the making of any investments or the carrying out of any transactions which are expressly required by the instrument
creating the trust or are specifically authorized by court order.
13
Under recognized principles of sound practice regarding the handling of trust assets, a trustee or other fiduciary should not have any interest, direct or indirect, in the assets of a trust
except as a fiduciary; and the requirements of this section contemplate that the national bank
will not invest trust funds in the stock or obligations of, or property acquired from, any organization in which officers, directors, or employees of the bank have such an interest as might affect
the exercise of the best judgment of the management of the bank in investing trust funds and
that the national bank will not sell or transfer trust assets to any organization in which the
officers, directors, or employees of the bank have such an interest as might affect the exercise
of the best judgment of the management of the bank in selling or transferring trust assets.




REGULATION F

»

(c) Dealings between trust accounts.—A national bank acting as
fiduciary shall not make any advance to any trust from the funds
belonging to any other trust, except when the making of such advances
to a designated trust is specifically authorized by the trust instrument
covering the trust from which such advances are made.
SECTION 12. CUSTODY OF TRUST SECURITIES AND INVESTMENTS

The securities and investments of each trust shall be kept separate
from the properties of the bank, and the securities and investments
of each trust also shall be kept separate from those of all other trusts
except as provided in subsection (c) of section 10 and section 17 of
this regulation.14 Trust securities and investments shall be placed in
the joint custody of two or more officers or employees of the bank
designated for that purpose by the board of directors of the bank; and
all such officers and employees shall be adequately bonded.
SECTION 13. DEPOSIT OF SECURITIES WITH STATE AUTHORITIES

Whenever the laws of a State require corporations acting in a fiduciary capacity to deposit securities with the State authorities for the
protection of private or court trusts, every national bank in that State
which obtains permission from the Board of Governors of the Federal
Reserve System to act in fiduciary capacities shall, before undertaking
to act in any fiduciary capacity, make a similar deposit of securities
with the State authorities. If the State authorities refuse to accept
such a deposit, the securities shall be deposited with the Federal Reserve bank of the district in which such national bank is located and
such securities shall be held for the protection of private or court trusts
with like effect as though the securities had been deposited with the
State authorities.
SECTION 14. COMPENSATION OF BANK

(a) In general.—If the amount of the fee or compensation for acting in a fiduciary capacity is not regulated by State law or stipulated
or provided for in the instrument creating the trust, a national bank
acting in such capacity may charge or deduct not more than a reasonable fee or compensation for its services. When the bank is acting in
a fiduciary capacity under appointment by a court, it may receive such
fee or compensation as shall be lawfully allowed or approved by that
court. All income derived from the investment of the funds of a trust,
less a proper fee or compensation and all other proper charges, shall be
paid over to, or credited to the account of, such trust.
14
This does not prevent the bank from investing the funds of several trusts in a single real
estate loan of the kind which could be made by the bank under the provisions of section 24 of
the Federal Reserve Act, as amended, if the bank owns no participation in the loan and has no
interest therein except as trustee or other fiduciary.




10

REGULATION F

(b) Officer or employee of bank as co-fiduciary.—-No national bank
shall, except with the specific approval of its board of directors, permit
any of its officers or employees, while serving as such, to retain any
fee or other compensation for acting as a co-fiduciary with the bank in
the administration of any trust accepted or undertaken by it.
SECTION 15. INSOLVENCY OR VOLUNTARY LIQUIDATION OF BANK

(a) Insolvency.—Whenever a national bank exercising fiduciary
powers becomes insolvent and a receiver is appointed therefor by the
Comptroller of the Currency, such receiver shall, pursuant to the instructions of the Comptroller and to the orders of the court or courts
of appropriate jurisdiction, proceed to close such trusts and estates as
can be closed promptly and transfer all other trusts and estates to
properly appointed substitute fiduciaries.
(b) Voluntary liquidation.—Whenever a national bank exercising
fiduciary powers is placed in voluntary liquidation, the liquidating
agent shall, in accordance with the laws of the State in which such
national bank is located, proceed at once to liquidate the affairs of
the trust department as follows:
1. All court trusts and estates under the jurisdiction of a court
shall be closed or disposed of as soon as practicable in accordance
with the orders or instructions of the court having jurisdiction.
2. All voluntary trusts which can be closed promptly shall be
closed as soon as practicable and final accounting made therefor.
3. All other trusts shall be transferred by appropriate legal proceedings to properly appointed substitute fiduciaries.
SECTION 18. SURRENDER OF TRUST POWERS

(a) Procedure.—Any national bank which has been granted the
right by the Board of Governors of the Federal Reserve System to
act in any fiduciary capacity or capacities and which desires to surrender such right shall signify such desire through a resolution duly
adopted by, and recorded in the minutes of, its board of directors. A
properly certified copy of such resolution shall be filed with the Federal Reserve bank of the district in which such national bank is located
and shall be accompanied by (1) a letter stating the reason why, or
the purpose for which, such national bank wishes to surrender its right
to exercise trust powers, unless such reason or purpose shall have been
amply stated in the resolution itself, (2) the permit or permits
previously issued by the Board to such national bank granting it the
right to act in any fiduciary capacity, and (3) any certificate or certificates previously issued to such national bank by the Board under the
provisions of sections 3 and 5 of this regulation, except that, in case



REGULATION F

11

any such permit or certificate shall have been lost or destroyed, an
affidavit by any officer of such national bank as to such loss or destruction shall be filed in lieu of such lost or destroyed permit or certificate.
(6) Words "Trust Company" as part of bank's title.—Before issuing
the certificate described in subsection id) of this section of this regulation, the Board will require any national bank which desires to surrender its right to exercise trust powers, and which has the words "trust
company" as part of its title, to eliminate such words from the title.
The elimination of such words involving a change in the name of the
bank is a matter within the jurisdiction of the Comptroller of the
Currency. Such a national bank, therefore, at the time of the adoption
of the resolution referred to in subsection (a) of this section of this
regulation, should communicate with the Comptroller of the Currency
for advice as to the procedure it will be necessary for it to pursue in
order to eliminate such words. Advice that such national bank has
taken this step should be given, in writing, to the Federal Reserve
bank at the time of the filing of the documents required by subsection
(a) of this section of this regulation.
(c) Examination of trust department.—Upon receipt of the documents referred to in subsection (a) of this section of this regulation,
the Board will request the Comptroller of the Currency, upon the
occasion of the next regular examination of such national bank, to
have one of his examiners make an investigation of the trust department of the bank in order to determine whether the bank, pursuant
to authority granted to it under section 11 (k) of the Federal Reserve
Act, has actually accepted or undertaken the exercise of any trust;
and, if so, whether it appears from the records of the trust department
in the case of each trust so accepted or undertaken—
(1) That all assets and papers belonging to the trust estate have
been delivered by the bank to the person or persons entitled to
receive them; and
(2) That the duties of the bank as fiduciary have been completely performed and that the bank has been discharged or otherwise properly relieved of all of its duties as fiduciary.
In exceptional cases, the Board may make, or may request the
Comptroller of the Currency to make, a special examination of thr
trust department of such national bank in order to obtain the information referred to in this subsection.
(d) Certificate of Board of Governors of the Federal Reserve System.—If, upon the basis of the examination referred to in subsection
(c) of this section of this regulation, the Board shall be satisfied that
the national bank desiring to surrender its right to exercise trust



12

REGULATION F

powers has never accepted or undertaken to exercise any trust or that
its duties as fiduciary have been completely performed and that it
has been discharged or otherwise properly relieved of all of its duties
as fiduciary, and if, in the case of a national bank the title of which
previously had included the words "trust company", the Board shall
also be satisfied, from advice received from the Comptroller of the
Currency, that the bank has properly eliminated these words from its
title, the Board may, in its discretion, issue to such national bank a
certificate certifying that such bank is no longer authorized to exercise
any of the trust powers conferred upon it by the Board.18
SECTION 17. COMMON TRUST FUNDS

(a) In general.—Funds received or held by a national bank as
fiduciary may be invested collectively in any Common Trust Fund
established and maintained in accordance with the provisions of this
section whenever the laws of the State in which the national bank is
located authorize or permit such investments by State banks, trust
companies, or other corporations which compete with national banks:
Provided, however, That funds shall not be invested in a Common
Trust Fund of the type provided for in subsection (d) of this section
unless such investment? are specifically authorized by the State
statutes.
As used in this regulation the term "Common Trust Fund" means
a fund maintained by a national bank exclusively for the collective
investment and reinvestment of moneys contributed thereto by the
bank in its capacity as trustee, executor, administrator, or guardian.16
The purpose of this section is to permit the use of Common Trust
Funds, as defined in section 169 of the Internal Revenue Code,17 for the
investment of funds held for true fiduciary purposes; and the operation of such Common Trust Funds as investment trusts for other than
strictly fiduciary purposes is hereby prohibited. No bank administering a Common Trust Fund shall issue any document evidencing a
direct or indirect interest in such Common Trust Fund in any form
which purports to be negotiable or assignable. The trust investment
committee of a bank operating a Common Trust Fund shall not permit any funds of any trust to be invested in a Common Trust Fund
15
Section lKk) of the Federal Reserve Act provides that, upon the issuance of such a certificate
by the Board, "such bank (1) shall no longer be subject to the provisions of this subsection or
the regulations of the Board of Governors of the Federal Reserve System made pursuant thereto,
(2) shall be entitled to have returned to it any securities which it may have deposited with the
State authorities for the protection of private or court trusts, and (3) shall not exercise thereafter any of the powers granted by this subsection without first applying for and obtaining a
new permit to exercise such powers pursuant to the provisions of this subsection."
16
As used in this regulation, the term "guardian" means guardian or committee of the estate
of an infant, incompetent, or absentee, by whatever name known in the State in which a particular national bank is located.
17
For applicable provisions of the Internal Revenue Code, see Appendix.




REGULATION F

13

if it has reason to believe that such trust was not created or is not
being used for bona fide fiduciary purposes.
Common Trust. Funds administered under this section shall be subject to the following requirements:
(1) Assets in a Common Trust Fund shall be considered as
assets held by the bank as fiduciary;
(2) A bank administering a Common Trust Fund shall not
invest any of its own funds in such Common Trust Fund and if a
bank, because of a creditor relationship or any other reason, acquires any interest in a participation in a Common Trust Fund
under its administration the participation shall be withdrawn on
the first date on which such withdrawal can be effected in accordance with the provisions of this section;
(3) A bank administering a Common Trust Fund shall not
have any interest 18 in the assets held in such Common Trust
Fund, other than in its capacity as fiduciary, except to the extent
permitted for a temporary period as provided in the immediately
preceding paragraph.
(b) Common Trust Funds for investment of small amounts.—Subject to all other provisions of this regulation except subsections (c)
and (d) of this section, cash balances received or held by a bank in
its capacity as trustee, executor, administrator, or guardian, which
the bank considers to be individually too small to be invested separately to advantage may be invested, with the approval of the trust
investment committee, in participations in a Common Trust Fund,
provided the total investment of the funds of any one trust in one or
more such Common Trust Funds shall not exceed $1,200.
(c) Common Trust Funds for general investment.—Subject to all
other provisions of this regulation except subsections (b) and (d) of
this section, funds received or held by a bank in its capacity as
trustee, executor, administrator, or guardian may be invested in participations in a Common Trust Fund administered pursuant to the
provisions of this subsection. All participations in such a Common
Trust Fund shall be on the basis of a proportionate interest in all of
the assets of the Common Trust Fund.
(1) Common Trust Fund to be operated under written plan.—
Each Common Trust Fund administered by a bank shall be
established and maintained in accordance with a written plan
(referred to herein as the Plan) approved by a resolution of the
18
A bank shall not be deemed to have an interest in assets in which collective investments are
made merely because of the fact that the bank owns in its own right other stocks, or bonds or
other obligations of a person, firm, or corporation, the stocks, or bonds or other obligations of
which are among the assets of a Common Trust Fund.




14

REGULATION F

bank's board of directors and approved in writing by competent
legal counsel. The Plan shall provide that the Common Trust
Fund shall be administered in conformity with the rules and
regulations, prevailing from time to time, of the Board of Governors of the Federal Reserve System pertaining to the collective investment of trust funds by national banks, and shall contain full and detailed provisions not inconsistent with the provisions of such rules and regulations as to the manner in which
the Common Trust Fund is to be operated, including provisions
relating to the investment powers of the bank with respect to
the Common Trust Fund, the allocation of income, profits and
losses, the terms and conditions governing the admission or withdrawal of participations in the Common Trust Fund, the auditing and settlement of accounts of the bank with respect to the
Common Trust Fund, the basis and method of valuing assets in
the Common Trust Fund, the basis upon which the Common
Trust Fund may be terminated, and such other matters as may
be necessary to define clearly the rights of participants in the
Common Trust Fund. A copy of the Plan shall be available
at the principal office of the bank for inspection, during all banking hours, to any person having an interest in a trust any funds
of which are invested in a participation in the Common Trust
Fund; and upon reasonable request a copy of the Plan shall be
furnished to such person.
(2) Trust investment committee to approve participation.—
No funds of a trust shall be invested in a participation in a
Common Trust Fund without the approval of the trust investment committee. Before permitting any funds of any trust
to be invested in a participation in a Common Trust Fund,
the trust investment committee shall review the investments
comprising the Common Trust Fund; and, if it finds that any
such investment is one in which funds of such trust might not
lawfully be invested at that time, funds of such trust shall not
be invested in a participation in such Common Trust Fund.
At the time of making the first investment of funds of a
trust in any Common Trust Fund, the bank shall send a notice
of such investment to each person to whom a regular periodic
accounting ordinarily would be rendered, except that such notices
need not be sent to a court unless required by the court, and
except that such notices need not be sent where the trust instrument specifically authorizes investments in Common Trust Funds.
(8) Common Trust Fund to be audited annually.—A bank
administering a Common Trust Fund shall, at least once during



REGULATION F

15

each period of twelve months, cause an audit to be made of
the Common Trust Fund by auditors responsible only to the
board of directors of the bank. The report of such audit shall
include a list of the investments comprising the Common Trust
Fund at the time of the audit which shall show the valuation
placed on each item on such list by the trust investment committee of the bank as of the date of the audit, a statement of
purchases, sales and any other investment changes and of income and disbursements since the last audit, and appropriate
comments as to any investments in default as to payment of
principal or interest. The reasonable expenses of any such
audit made by independent public accountants may be charged
to the Common Trust Fund.
The bank shall, without charge, send a copy of the latest
report of such audit annually to each person to whom a regular
periodic accounting of the trusts participating in the Common
Trust Fund ordinarily would be rendered or shall send advice to
each such person annually that the report is available and that
a copy will be furnished without charge upon request.
(4) Value of assets to be determined periodically.—Not less
frequently than once during each period of three months the
trust investment committee of a bank administering a Common
Trust Fund shall determine the value of the assets in the
Common Trust Fund. No participation shall be admitted to
or withdrawn from the Common Trust Fund except on the
basis of such valuation and on the date of the determination of
such valuation or, if permitted by the Plan, within two business days subsequent to the date of such determination. No
participation shall be admitted or withdrawn unless, in accordance with provisions of the Plan, prior to the date of the determination of such valuation, notice of intention to participate or to make such withdrawal shall have been given in
writing to the bank administering the Common Trust Fund, or
a written notation of the contemplated participation or withdrawal shall have been made in the records of the bank.
(5) Miscellaneous limitations.—No funds of any trust shall
be invested in a participation in a Common Trust Fund if
such investment would result in such trust having an interest
in the Common Trust Fund in excess of 10 per cent of the
value of the assets of the Common Trust Fund, as determined
by the trust investment committee, or the sum of $25,000,
whichever is less at the time of investment. If the bank administers more than one Common Trust Fund under this sub


16

REGULATION F

section, no investment shall be made which would cause any one
trust to have an interest in all such Common Trust Funds in
excess of the sum of $25,000; and, if the bank administers Funds
under both subsections (c) and (d) of this section, no investment
shall be made which would cause any one trust to have an
interest in all such Funds in excess of the sum of $25,000. In
applying the limitations contained in this paragraph, if two or
more trusts are created by the same settlor or settlors and as
much as one-half of the income or principal or both of each
trust is payable or applicable to the use of the same person or
persons, such trusts shall be considered as one.
No investment for a Common Trust Fund shall be made in
stocks, or bonds or other obligations of any one person, firm,
or corporation which would cause the total amount of investment in stocks, or bonds or other obligations issued or guaranteed by such person, firm, or corporation to exceed 10 per cent
of the value of the Common Trust Fund, as determined by the
trust investment committee, provided that this limitation shall
not apply to investments in obligations of the United States
or for the payment of the principal and interest of which the
faith and credit of the United States shall be pledged.
No investment for a Common Trust Fund shall be made in
any one class of shares of stock of any one corporation which
would cause the total number of such shares held by the Common Trust Fund to exceed 5 per cent of the number of such
shares outstanding. If the bank administers more than one
Common Trust Fund no investment shall be made which would
cause the aggregate investment for all such Common Trust
Funds in shares of stock of any one corporation to exceed such
limitation.
Any bank administering a Common Trust Fund shall have
the responsibility of maintaining in cash and readily marketable securities 1!) such part of the assets of the Common Trust
Fund as shall be deemed by the bank to be necessary to provide adequately for the needs of participating trusts and to
prevent inequities between such trusts. In any event, prior
to any admissions to or withdrawals from a Common Trust
Fund, the trust investment committee shall determine what percentage of the value of the assets of a Common Trust Fund is
composed of cash and readily marketable securities; and if such
10
A readily marketable security within the meaning of this section means a security which
is the subject of frequent dealings in ready markets with such frequent quotations of price
as to make (a) the price easily and definitely ascertainable and (b) the security itself easy to
realize upon by sale at any time.




REGULATION F

17

committee determines that, after effecting the admissions and
withdrawals which are to be made pursuant to notice given as
required in subdivision (4) of this subsection, less than 40 per
cent of the value of the remaining assets of the Common Trust
Fund would be composed of cash and readily marketable securities, no admissions to or withdrawals from the Common
Trust Fund shall be permitted as of the valuation date upon
which such determination is made, except that ratable distribution upon all participations is not prohibited.
(6) Distribution upon withdrawal of participation.—When participations are withdrawn from a Common Trust Fund distributions may be made in cash or ratably in kind, or partly in cash
and partly ratably in kind, provided that all distributions as of
any one valuation date shall be made on the same basis. Before
any distribution in cash is made, the trust investment committee
shall determine whether any investment remaining in the Common Trust Fund would be unlawful for one or more participating
trusts if funds of such trusts were being invested at that time; and
no distribution shall be made in cash until any such unlawful
investment shall have been eliminated from the Common Trust
Fund either through sale, distribution in kind, or segregation as
provided in the subdivision immediately following hereafter.
(7) Segregation of investments.—If for any reason an investment is withdrawn in kind from a Common Trust Fund for the
benefit of all trusts participating in the Common Trust Fund at the
time of such withdrawal and such investment is not distributed
ratably in kind it shall be segregated and administered or realized
upon for the benefit ratably of all trusts participating in the Common Trust Fund at the time of withdrawal.
(8) Management of Common Trust Fund and fees.—A national
bank administering a Common Trust Fund shall have the exclusive
management thereof and shall not charge a fee for the management
of the Common Trust Fund, or receive, either from the Common
Trust Fund or from any trusts the funds of which are invested
in participations therein, any additional fees, commissions, or
compensations of any kind by reason of such participation. The
bank shall not pay a fee, commission, or compensation out of the
Common Trust Fund for management. Nothing in this paragraph
shall be construed as prohibiting a bank from reimbursing itself
out of a Common Trust Fund for such reasonable expenses incurred by it in the administration thereof as would have been
chargeable to the respective participating trusts if incurred in the
separate administration of such participating trusts.



18

REGULATION F

(9) Effect of mistakes.—No mistake made in good faith and
in the exercise of due care in connection with the administration of
a Common Trust Fund shall be deemed to be a violation of this
regulation if promptly after the discovery of the mistake the bank
takes whatever action may be practicable in the circumstances to
remedy the mistake.
(rf) Common Trust Funds composed principally of mortgages
(Mortgage Investment Funds).—Subject to all other provisions of
this regulation except subsections (b) and (c) of this section,20 funds
received or held by a bank in its capacity as trustee, executor, administrator, or guardian may be invested in participations in a
Common Trust Fund administered pursuant to the provisions of this
subsection (hereinafter referred to as a "Mortgage Investment Fund").
All admissions and withdrawals of participations in a Mortgage
Investment Fund shall be made on the basis of the actual amount
invested by each participant, and, except in final liquidation of a
Mortgage Investment Fund, participants therein shall not have an
interest in reserves accumulated or enhancement in the value of
assets, except such as may be distributable as income.
(1) Mortgage Investment Fund to be operated under written
plan.—Each Mortgage Investment Fund shall be subject to the
provisions of subdivision (1) of subsection (c) of this section.
{2) Trust investment committee to approve participation.—No
funds of a trust shall be invested in a participation in a Mortgage Investment Fund without the approval of the trust investment committee. Before permitting any funds of any trust to
be invested in a participation in a Mortgage Investment Fund,
the trust investment committee shall review the assets comprising
the Mortgage Investment Fund; and, if it finds that the condition
of the Mortgage investment Fund is such that the funds of such
trust might not lawfully be invested in a participation therein
at that time, or that such investment would be contrary to the
provisions of this subsection, funds of such trust shall not be
so invested.
At the time of making the first investment of funds of a trust
in any Mortgage Investment Fund, the bank shall send a notice
of such investment to each person to whom a regular periodic
accounting ordinarily would be rendered, except that such notices
need not be sent to a court unless required by the court, and
except that such notices need not be sent where the trust instru10
Note, however, that certain provisions of subsection (r) are incorporated in this subsection
by reference.




REGULATION F

19

ment specifically authorizes investments in Mortgage Investment
Funds.
(3) Mortgage Investment Fund to be audited annually.—Each
Mortgage Investment Fund shall be subject to the provisions
of subdivision (3) of subsection (c) of this section.
(4) Value oj assets to be determined periodically.—Not less
frequently than once during each period of three months, the
trust investment committee of a bank administering a Mortgage
Investment Fund shall determine the value of the assets in the
Mortgage Investment Fund. No participation shall b*e admitted
to or withdrawn from the Mortgage Investment Fund except on
the date of determination of such valuation or, if permitted by
the Plan, within two business days subsequent to the date of such
determination; and no participation shall be admitted to or withdrawn from the Mortgage Investment Fund unless, on the basis
of such valuation, the value of the assets of the Mortgage Investment Fund, exclusive of accrued income, is at least equal to the
amount of the outstanding participations. No participation shall
be admitted or withdrawn unless, in accordance with the provisions of the Plan, prior to the date of the determination of
such valuation, notice of intention to participate or to make such
withdrawal shall have been given in writing to the bank administering the Mortgage Investment Fund, or a written notation
of the contemplated participation or withdrawal shall have been
made in the records of the bank.
The real estate securing each obligation contained in a Mortgage Investment Fund and any real estate contained in the Mortgage Investment Fund shall be appraised at least once every
three years by two persons, one of whom shall not have participated in the last preceding appraisal of the particular property
for the purposes of the Mortgage Investment Fund. Such persons
shall be appointed by the bank's board of directors and shall,
in the opinion of the board, be familiar with real estate values
in the vicinity in which any such real estate is situated and
qualified to make such appraisals. The persons appointed shall
actually inspect such real estate and shall so certify in a written
certificate of appraisal, which shall be filed and preserved in
the bank's records.
The trust investment committee shall require more frequent
appraisals of all properties or any particular property if such
action is deemed by the committee to be necessary to enable it
properly to discharge the duties imposed upon it by this subsection.



20

REGULATION F

(5) Miscellaneous limitations.—No funds of any trust shall
be invested in a participation in a Mortgage Investment Fund if
such investment would result in such trust's having an interest
in the Mortgage Investment Fund in excess of the sum of $1,200
or 2 per cent of the amount of the outstanding participations in
the Mortgage Investment Fund, whichever is greater at the time
of investment, or in any event in excess of the sum of $10,000.
If the bank administers more than one Mortgage Investment
Fund, no investment shall be made which would cause any one
trust to have an interest in all such Mortgage Investment Funds
in excess of the sum of $10,000; and, if the bank administers
Funds under both subsections (c) and (d) of this section, no
investment shall be made which would cause any one trust to
have an interest in all such Funds in excess of the sum of $25,000.
In applying the limitations contained in this paragraph, if two
or more trusts are created by the same settlor or settlors and as
much as one-half of the income or principal or both of each trust
is payable or applicable to the use of the same person or persons,
such trusts shall be considered as one.
No investment for a Mortgage Investment Fund shall be made
in obligations.of any one person, firm, or corporation which would
cause the total amount of investment in obligations issued or
guaranteed by such person, firm, or corporation to exceed 10
per cent of the amount of the outstanding participations in the
Mortgage Investment Fund, provided that this limitation shall
not apply to investments in obligations of the United States or
for the payment of the principal and interest of which the faith
and credit of the United States shall be pledged.
The unpaid balance of any obligation secured by real estate
in which the funds of a Mortgage Investment Fund are invested
shall not exceed $10,000 on the date of the investment therein
unless the aggregate amount of all outstanding participations
in the Mortgage Investment Fund exceeds $200,000, in which
event the unpaid balance of such obligation shall not exceed 5 per
cent of the amount of such outstanding participations or $50,000,
whichever amount is less.
Any bank administering a Mortgage Investment Fund shall
have the responsibility of maintaining in cash such part of the
assets of the Mortgage Investment Fund as shall be deemed by
the bank to be necessary to provide adequately for the needs of
participating trusts and to prevent inequities between such trusts.
No investment of the moneys of a Mortgage Investment Fund
shall be made if following such investment the cash balance,



REGULATION F

21

exclusive of collected income on hand, in the Mortgage Investment Fund would be less than an amount equal to 5 per cent of
the total amount of all outstanding participations in the Mortgage Investment Fund. Unless, upon computing the amount of
the admissions and withdrawals which are to be made as of any
valuation date pursuant to notice given as required in subdivision
(4) of this subsection, the trust investment committee determines
that there will be sufficient cash in the Mortgage Investment
Fund to permit all such withdrawals, no admissions to or withdrawals from the Mortgage Investment Fund shall be permitted
as of such valuation date.
Unless the trust investment committee determines that, after
effecting the admissions and withdrawals which are to be made
as of any valuation date pursuant to notice given as required in
subdivision (4) of this subsection, the amount of investments of
a Mortgage Investment Fund represented by assets in which
moneys of the Mortgage Investment Fund could not then be
invested under the provisions of subdivision (8) of this subsection will not exceed 10 per cent of the amount of the outstanding participations in the Mortgage Investment Fund, no admissions to or withdrawals from the Mortgage Investment Fund
shall be permitted as of such valuation date.
(6) Reserve account and distribution of income.—In each
Mortgage Investment Fund the bank shall establish and maintain a reserve account as part of the principal thereof, to which,
to the extent available, all realized losses shall be charged. Any
realized gain in the value of assets of a Mortgage Investment
Fund, other than income, shall be credited to such reserve
account.
At least 'semiannually a bank administering a Mortgage Investment Fund shall determine the net income of the Mortgage
Investment Fund during the period since the last determination
thereof. At the close of each earning period, if the total amount
contained in such reserve account is less than 10 per cent of the
total amount of all outstanding participations in the Mortgage Investment Fund, the bank shall transfer to the reserve account, out
of the net income of the Mortgage Investment Fund, such amount
as the bank shall determine to be proper under the circumstances.
The total amount so to be transferred to the reserve account
during any year shall not be less than 10 per cent of the amount
of the gross income of the Mortgage Investment Fund for such
year or more than one per cent of the average of the total
amounts of all outstanding participations in the Mortgage



REGULATION F

Investment Fund at the close of each earning period. No such
transfers to the reserve account shall be made which will cause
the amount contained therein to exceed 10 per cent of the amount
of all outstanding participations.
The balance of the net income remaining after transferring
the appropriate part thereof, if any, to the reserve account, shall
thereupon be distributed to the owners of the outstanding participations in the Mortgage Investment Fund in proportion to the
amounts of their participations and the period of time owned
since the previous determination of net income.
(7) Withdrawal of participation in a Mortgage Investment
Fund.—Upon the withdrawal of a participation of any trust prior
to termination and final liquidation of a Mortgage Investment
Fund, such trust shall be entitled to be paid in cash the total
amount of the funds of such trust invested in the participation,
with net income thereon to the date of such payment, but such
income shall not be paid until the amount thereof shall have
been determined at the close of the current earning period.
Upon the termination and final liquidation of a Mortgage
Investment Fund, all assets of the Mortgage Investment Fund
shall be distributed among the owners of the participations at
that time in proportion to the amounts thereof.
{8) Investment of moneys of Mortgage Investment Funds.—
The moneys of. a Mortgage Investment Fund shall be invested
in—
(A) Obligations secured by real estate which, at the date
of the investment, are legal for investment of trust funds
under the laws of the State in which the bank is located
and are insured by the Federal Housing Administrator, having been insured prior to the first day of July 1939, pursuant
to the- provisions of Title II of the National Housing Act,
approved the 27th day of June 1934, as amended, or having
been so insured thereafter, with like force and effect, pursuant to any revision or extension of the provisions of the
said Act; or
(B) Obligations secured by real estate which, at the date
of the investment, are legal for investment of trust funds
under the laws of the State in which the bank is located
and are of the kind which might be acquired by a national
bank under the provisions for making amortized loans contained in the third sentence of section 24 of the Federal
Reserve Act; or
( D Obligations secured by real estate which, at the date




REGULATION F

23

of the investment, are legal for investment of trust funds
under the laws of the State in which the bank is located,
which are payable within 20 years, and which either provide
for semiannual payments reducing the principal thereof annually in an amount equal to at least 5 per cent of the
amount of the principal on the date of investment, or provide for the amortization of the total unpaid principal
amount of such mortgage on the date of investment by
equal monthly payments during the term of such mortgage,
such monthly payments being fixed at an amount which will
include the interest due on such mortgage on the date of
such payments and an additional amount to be applied in
the reduction of the unpaid principal amount of such mortgage. In the case of a renewal or extension of any such
obligation held by a Mortgage Investment Fund, the date
upon which the Mortgage Investment Fund originally acquired the obligation shall be considered the date of investment.
If in the judgment of the trust investment committee such obligations are not available for investment of moneys of a Mortgage Investment Fund, such moneys may be invested temporarily
in obligations of the United States or of the State in which the
bank is located or for the payment of the principal and interest
of which the faith and credit of the United States or of such
State shall be pledged, and which are legal for investment of
trust funds under the laws of the State in which the bank is
located. As soon as obligations secured by real estate in which
the moneys of the Mortgage Investment Fund may be invested
are available, such securities shall be disposed of and the proceeds invested in such obligations if this can be accomplished
without disadvantage to the Mortgage Investment Fund.
(9) Management of Mortgage Investment Fund and fees.—
Each Mortgage Investment Fund shall be subject to the provisions
of subdivision (8) of subsection (c) of this section.
(10) Effect of mistakes.—Each Mortgage Investment Fund
shall be subject to the provisions of subdivision (9) of subsection
(c) of this section.
SECTION 18. BOARD FORMS

All forms referred to in this regulation and all such forms as
amended from time to time shall be a part of this regulation.







APPENDIX
Section 11 (k) of the Federal Reserve Act, as amended by the Acts
of Congress approved September 26, 1918, June 26, 1930, and August
23, 1935, provides as follows:
The Board of Governors of the Federal Reserve System shall be
authorized and empowered:
(k) To grant by special permit to national banks applying
therefor, when not in contravention of State or local law, the
right to act as trustee, executor, administrator, registrar of stocks
and bonds, guardian of estates, assignee, receiver, committee of
estates of lunatics, or in any other fiduciary capacity in which
State banks, trust companies, or other corporations which come
into competition with national banks are permitted to act under
the laws of the State in which the national bank is located.
Whenever the laws of such State authorize or permit the exercise
of any or all of the foregoing powers by State banks, trust companies, or other corporations which compete with national banks,
the granting to and the exercise of such powers by national banks
shall not be deemed to be in contravention of State or local law
within the meaning of this Act.
National banks exercising any or all of the powers enumerated
in this subsection shall segregate all assets held in any fiduciary
capacity from the general assets of the bank and shall keep a
separate set of books and records showing in proper detail all
transactions engaged in under authority of this subsection. The
State banking authorities may have access to reports of examination made by the Comptroller of the Currency insofar as such
reports relate to the trust department of such bank, but nothing
in this Act shall be construed as authorizing the State banking
authorities to examine the books, records, and assets of such bank.
No national bank shall receive in its trust department deposits
of current funds subject to check or the deposit of checks, drafts,
bills of exchange, or other items for collection or exchange purposes. Funds deposited or held in trust by the bank awaiting
investment shall be carried in a separate account and shall not be
used by the bank in the conduct of its business unless it shall first
set aside in the trust department United States bonds or other
securities approved by the Board of Governors of the Federal
Reserve System.
In the event of the failure of such bank the owners of the funds
held in trust for investment shall have a lien on the bonds or other
securities so set apart in addition to their claim against the estate
of the bank.
Whenever the laws of a State require corporations acting in a
fiduciary capacity, to deposit securities with the State authorities
for the protection of private or court trusts, national banks so
acting shall be required to make similar deposits and securities
so deposited shall be held for the protection of private or court
trusts, as provided by the State law.
25



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REGULATION F

National banks in such cases shall not be required to execute
the bond usually required of individuals if State corporations
under similar circumstances are exempt from this requirement.
National banks shall have power to execute such bond when
so required by the laws of the State.
In any case in which the laws of a State require that a corporation acting as trustee, executor, administrator, or in any capacity
specified in this section, shall take an oath or make an affidavit,
the president, vice president, cashier, or trust officer of such national bank may take the necessary oath or execute the necessary
affidavit.
It shall be unlawful for any national banking association to
lend any officer, director, or employee any funds held in trust
under the powers conferred by this section. Any officer, director,
or employee making such loan, or to whom such loan is made,
may be fined not more than $5,000, or imprisoned not more than
five years, or may be both fined and imprisoned, in the discretion
of the court.
In passing upon applications for permission to exercise the
powers enumerated in this subsection, the Board of Governors of
the Federal Reserve System may take into consideration the
amount of capital and surplus of the applying bank, whether or
not such capital and surplus is sufficient under the circumstances
of the case, the needs of the community to be served, and any
other facts and circumstances that seem to it proper, and may
grant or refuse the application accordingly: Provided, That no
permit shall be issued to any national banking association having
a capital and surplus less than the capital and surplus required
by State law of State banks, trust companies, and corporations
exercising such powers.
Any national banking association desiring to surrender its right
to exercise the powers granted under this subsection, in order to
relieve itself from the necessity of complying with the requirements of this subsection, or to have returned to it any securities
which it may have deposited with the State authorities for the
protection of private or court trusts, or for any other purpose,
may file with the Board of Governors of the Federal Reserve System a certified copy of a resolution of its board of directors signifying such desire. Upon receipt of such a resolution, the Board
of Governors of the Federal Reserve System, after satisfying itself
that such bank has been relieved in accordance with State law of
all duties as trustee, executor, administrator, registrar of stocks
and bonds, guardian of estates, assignee, receiver, committee of
estates of lunatics or other fiduciary, under court, private, or other
appointments previously accepted under authority of this subsection, may, in its discretion, issue to such bank a certificate
certifying that such bank is no longer authorized to exercise the
powers granted by this subsection. Upon the issuance of such a
certificate by the Board of Governors of the Federal Reserve System, such bank (1) shall no longer be subject to the provisions
of this subsection or the regulations of the Board of Governors
of the Federal Reserve System made pursuant thereto, (2) shall
be entitled to have returned to it any securities which it may have



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27

deposited with the State authorities for the protection of private
or court trusts, and (3) shall not exercise thereafter any of the
powers granted by this subsection without first applying for and
obtaining a new permit to exercise such powers pursuant to the
provisions of this subsection. The Board of Governors of the
Federal Reserve System is authorized and empowered to promulgate such regulations as it may deem necessary to enforce
compliance with the provisions of this subsection and the proper
exercise of the powers granted therein.
Sections 1 and 3 of the Act of Congress approved November 7, 1918,
as amended by the Acts of Congress approved February 25, 1927,
June 16, 1933, and August 23, 1935, provide in part as follows:
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress Assembled, That any two or
more national banking associations located within the same State,
county, city, town, or village may, with the approval of the Comptroller of the Currency, consolidate into one association under the
charter of either existing banks, on such terms and conditions as
may be lawfully agreed upon by a majority of the board of
directors of each association proposing to consolidate, and be
ratified and confirmed by the affirmative vote of the shareholders
of each such association owning at least two-thirds of its capital
stock outstanding, * • *.
Sec. 3. That any bank incorporated under the laws of any State,
or any bank incorporated in the District of Columbia, may be
consolidated with a national banking association located in the
same State, county, city, town, or village under the charter of such
national banking association on such terms and conditions as
may be lawfully agreed upon by a majority of the board of directors of each association or bank proposing to consolidate, and
which agreement shall be ratified and confirmed by the affirmative vote of the shareholders of each such association or bank
owning at least two-thirds of its capital stock outstanding, or by
a greater proportion of such capital stock in the case of such
State bank if the laws of the State where the same is organized so
require, * * *. Upon such a consolidation, or upon a consolidation
of two or more national banking associations under section 1 of
this Act, the corporate existence of each of the constituent banks
and national banking associations participating in such consolidation shall be merged into and continued in the consolidated
national banking association and the consolidated association
shall be deemed to be the same corporation as each of the constituent institutions. All the rights, franchises, and interests of
each of such constituent banks and national banking associations
in and to every species of property, real, personal, and mixed, and
choses in action thereto belonging, shall be deemed to be transferred to and vested in such consolidated national banking association without any deed or other transfer; and such consolidated
national banking association, by virtue of such consolidation and
without any order or other action on the part of any court or



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REGULATION F

otherwise, shall hold and enjoy the same and all rights of property, franchises, and interests, including appointments, designations, and nominations and all other rights and interests as
trustee, executor, administrator, registrar of stocks and bonds,
guardian of estates, assignee, receiver, committee of estates of
lunatics and in every other fiduciary capacity, in the same manner
and to the same extent as such rights, franchises, and interests
were held or enjoyed by any such constituent institution at the
time of such consolidation: Provided, however, That where any
such constituent institution at the time of such consolidation was
acting under appointment of any court as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates,
assignee, receiver, committee of estates of lunatics or in any other
fiduciary capacity, the consolidated national banking association
shall be subject to removal by a court of competent jurisdiction
in the same manner and to the same extent as was such constituent
corporation prior to the consolidation, and nothing herein contained shall be construed to impair in any manner the right of any
court to remove such a consolidated national banking association
and to appoint in lieu thereof a substitute trustee, executor, or
other fiduciary, except that such right shall not be exercised in
such a manner as to discriminate against national banking associations, nor shall any such consolidated association be removed
solely because of the fact that it is a national banking association.
The Act of Congress approved May 1, 1886, provides in part as
follows:
Sec. 2. That any national banking association may change its
name or the place where its operations of discount and deposit
are to be carried on, to any other place within the same State, not
more than thirty miles distant with the approval of the Comptroller of the Currency, by the vote of shareholders owning twothirds of the stock of such association. A duly authenticated
notice of the vote and of the new name or location selected shall
be sent to the office of the Comptroller of the Currency; but no
change of name or location shall be valid until the Comptroller
shall have issued his certificate of approval of the same.
Sec. 3. That all debts, liabilities, rights, provisions, and powers
of the association under its old name shall devolve upon and
inure to the association under its new name.
Sec. 4. That nothing in this act contained shall be so construed as in any manner to release any national banking association under its old name or at its old location from any liability, or
affect any action or proceeding in law in which said association
may be or become a party or interested.
There are printed below certain provisions of the Internal Revenue
Code which are pertinent to some of the subject matter of this regulation.
SEC. 169. COMMON TRUST FUNDS.

fa) DEFINITIONS.—The term "common trust fund" means a
fund maintained by a bank (as defined in section 104) —




REGULATION F

29

(1) exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity
as a trustee, executor, administrator, or guardian; and
(2) in conformity with the rules and regulations, prevailing
from time to time, of the Board of Governors of the Federal
Reserve System pertaining to the collective investment of
trust funds by national banks.
(6) TAXATION OF COMMON TRUST FUNDS.—A common trust
fund shall not be subject to taxation under this chapter, subchapters A or B of chapter 2, or section 105 or 106 of the Revenue Act
of 1935, 49 Stat. 1017, 1019, or chapter 6 and for the purposes of
such chapters and subchapters shall not be considered a corporation.
(c) INCOME OF PARTICIPANTS IN FUND—
(1) INCLUSIONS IN NET INCOME.—Each participant in the

common trust fund in computing its net income shall include,
whether or not distributed and whether or not distributable—
(A) As a part of its short-term capital gains or losses,
its proportionate share of the net short-term capital gain
or loss of the common trust fund;
(B) As a part of its long-term capital gains or losses,
its proportionate share of the net long-term capital gain
or loss of the common trust fund;
(C) Its proportionate share of the ordinary net income or the ordinary net loss of the common trust fund,
computed as provided in subsection (d).
(2) CREDIT FOR PARTIALLY EXEMPT INTEREST.—The pro-

portionate share of each participant in the amount of interest
specified in section 25 (a) received by the common trust fund
shall for the purposes of this Supplement be considered as
having been received by such participant as such interest.
(d) COMPUTATION OF COMMON TRUST FUND INCOME.—The net

income of the common trust fund shall be computed in the same
manner and on the same basis as in the case of an individual,
except that—
(1) There shall be segregated the short-term capital gains
and losses and the long-term capital gains and losses, and
the net short-term capital gain or loss and the net long-term
capital gain or loss shall be computed;
(2) After excluding all items of either short-term or longterm capital gain or loss, there shall be computed—
(A) An ordinary net income which shall consist of the
excess of the gross income over the deductions; or
(B) An ordinary net loss which shall consist of the
excess of the deductions over the gross income;
(3) The so-called "charitable contribution" deduction allowed by section 23 (o) shall not be allowed.
(e) ADMISSION AND WITHDRAWAL.—No gain or loss shall be
realized by the common trust fund by the admission or with


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REGULATION F

drawal of a participant. The withdrawal of any participating
interest by a participant shall be treated as a sale or exchange of
such interest by the participant.
(/) RETURNS BY BANK.—Every bank (as defined in section 104)
maintaining a common trust fund shall make a return under oath
for each taxable year, stating specifically, with respect to such
fund, the items of gross income and the deductions allowed by this
chapter, and shall include in the return the names and addresses
of the participants who would be entitled to share in the net income if distributed and the amount of the proportionate share
of each participant. The return shall be sworn to as in the case
of a return filed by the bank under section 52.
(g) DIFFERENT TAXABLE YEARS OF COMMON TRUST FUND AND

PARTICIPANT.—If the taxable year of the common trust fund is
different from that of a participant, the inclusions with respect to
the net income of the common trust fund, in computing the net
income of the participant for its taxable year shall be based upon
the net income of the common trust fund for any taxable year of
the common trust fund (whether beginning on, before, or after
January 1, 1939) ending within or with the taxable year of the
participant.
SEC. 104. BANKS AND TRUST COMPANIES.

(a) DEFINITION.—As used in this section the term "bank" means
a bank or trust company incorporated and doing business under
the laws of the United States (including laws relating to the District of Columbia), of any State, or of any Territory, a substantial
part of the business of which consists of receiving deposits and
making loans and discounts, or of exercising fiduciary powers similar to those permitted to national banks under section 11 (k) of
the Federal Reserve Act, 38 Stat. 262 (U. S. C , Title 12, § 248 K),
as amended, and which is subject by law to supervision and examination by State, Territorial or Federal authority having supervision over banking institutions.
A STATEMENT OF PRINCIPLES OF TRUST INSTITUTIONS
This statement was adopted by the Executive Committee of the
Trust Division, American Bankers Association on April 10, 1933, and
approved by the Executive Council of the American Bankers Association on April 11, 1933.
FOREWORD

This Statement of Principles has been formulated in order that the
fundamental principles of institutions engaged in trust business may be
restated and thereby become better understood and recognized by the
public, as well as by trust institutions, themselves, and in order that
it may serve as a guide for trust institutions.
In the conduct of their business trust institutions are governed by
the cardinal principle that is common to all fiduciary relationships—



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31

namely, fidelity. Policies predicated upon this principle have for their
objective its expression in terms of safety, good management, and personal service. Practices developed under these policies are designed
to promote efficiency in administration and operation.
The fact that the services performed by trust institutions have become an integral part of the social and economic structure of the
United States makes the principles of such institutions a matter of
public interest.
ARTICLE I
DEFINITION OF TERMS

Section 1. Trust Institutions.—Trust institutions are corporations
engaged in trust business under authority of law. They embrace not
only trust companies that are engaged in trust business exclusively but
also trust departments of other corporations.
Section 2. Trust Business.—Trust business is the business of settling
estates, administering trusts and performing agencies in all appropriate
cases for individuals; partnerships; associations; business corporations; public, educational, social, recreational, and charitable institutions; and units of government. It is advisable that a trust institution should limit the functions of its trust department to such services.
ARTICLE II
ACCEPTANCE OF TRUST BUSINESS

A trust institution is under no obligation, either moral or legal, to
accept all business that is offered.
Section 1. Personal Trust Business.—With respect to the acceptance
of personal trust business the two determining factors are these: Is
trust service needed, and can the service be rendered properly? In
personal trusts and agencies, the relationship is private, and the trust
institution is responsible to those only who have or may have a
financial interest in the account.
Section 2. Corporate Trust Business.—In considering the acceptance
of a corporate trust or agency the trust institution should be satisfied
that the company concerned is in good standing and that the enterprise
is of a proper nature.
ARTICLE II!
ADMINISTRATION OF TRUST BUSINESS

Section 1. Personal Trusts.—In the administration of its personal
trust business, a trust institution should strive at all times to render
unexceptionable business and financial service, but it should also be
careful to render equally good personal service to beneficiaries. The
first duty of a trust institution is to carry out the wishes of the creator
of a trust as expressed in the trust instrument. Sympathetic, tactful,
personal relationships with immediate beneficiaries are essential to the
performance of this duty, keeping in mind also the interests of ultimate beneficiaries. It should be the policy of trust institutions that



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REGULATION F

all personal trusts should be under the direct supervision of and that
beneficiaries should be brought into direct contact with the administrative or senior officers of the trust department.
Section 2. Confidential Relationships.—Personal trust service is of a
confidential nature and the confidences reposed in a trust department
by a customer should never be revealed except when required by law.
Section 3. Fundamental Duties of Trustees.—It is the duty of a
trustee to administer a trust solely in the interest of the beneficiaries
without permitting the intrusion of interests of the trustee or third
parties that may in any way conflict with the interests of the trust;
to keep and render accurate accounts with respect to the administration of the trust; to acquaint the beneficiaries with all material facts
in connection with the trust; and, in administering the trust, to exercise the care a prudent man familiar with such matters would exercise
as trustee of the property of others, adhering to the rule that the trustee is primarily a conserver.
Section 4. Corporate Trust Business.—In the administration of corporate trusts and agencies the trust institution should render the same
fine quality of service as it renders in the administration of personal
trusts and agencies. Promptness, accuracy, and protection are fundamental requirements of efficient corporate trust service. The terms
of the trust instrument should be carried out with scrupulous care and
with particular attention to the duties imposed therein upon the
trustee for the protection of the security-holders.
ARTICLE IV
OPERATION OF TRUST DEPARTMENTS

Section 1. Separation of Trust Properties.—The properties of each
trust should be kept separate from those of all other trusts and separate also from the properties of the trust institution itself.
Section 2. Investment of Trust Funds.—The investment function of
a trustee is care and management of property, not mere safekeeping
at one extreme or speculation at the other. A trust institution should
devote to its trust investments all the care and skill that it has or can
reasonably acquire. The responsibility for the investment of trust
funds should not be reposed in an individual officer or employee of a
trust department. All investments should be made, retained or sold
only upon the authority of an investment committee composed of
capable and experienced officers or directors of the institution.
When the trust instrument definitely states the investment powers
of the trustee, the terms of the instrument must be followed faithfully.
If it should become unlawful or impossible or against public policy to
follow literally the terms of the trust instrument, the trustee should
promptly seek the guidance of the court about varying or interpreting
the terms of the instrument and should not act on its own responsibility in this respect except in the face of an emergency, when the
guidance of the court beforehand could not be obtained. If the trust
instrument is silent about trust investments or if it expressly leaves the
selection and retention of trust investments to the judgment and discretion of the trustee, the latter should be governed by considerations



REGULATION F

33

of the safety of principal and dependability of income and not by hope
or expectation of unusual gain through speculation. However, a trustee should not be content with safety of principal alone to the disregard of the reasonable income requirements of the beneficiaries.
It is a fundamental principle that a trustee should not have any
personal financial interest, direct or indirect, in the trust investments,
bought for or sold to the trusts of which it is trustee, and that it should
not purchase for itself any securities or other property from any of its
trusts. Accordingly, it follows that a trust institution should not buy
for or sell to its estates or trusts any securities or other property in
which it, or its affiliate, has any personal financial interest, and should
not purchase for itself, or its affiliate, any securities or other property
from its estates or trusts.
ARTICLE V
COMPENSATION FOR TRUST SERVICE

Section 1.—A trust institution is entitled to reasonable compensation
for its services. Compensation should be determined on the basis of
the cost of the service rendered and the responsibilities assumed.
Minimum fees in any community for trust services should be uniform
and applied uniformly and impartially to all customers alike.
ARTICLE VI
PROMOTIONAL EFFORT

Section 1. Advertising.—A trust institution has the same right as
any other business enterprise to advertise its trust services in appropriate ways. Its advertisements should be dignified and not overstate
or overemphasize the qualifications of the trust institutions. There
should be no implication that legal services will be rendered. There
should be no reflection, expressed or implied, upon other trust institutions or individuals, and the advertisements of all trust institutions
should be mutually helpful.
Section 2. Personal Representation.—The propriety of having personal representatives of trust departments is based upon the same principle as that of advertising. Trust business is so individual and distinctive that the customer cannot always obtain from printed matter
all he wishes to know about the protection and management the trust
institution will give his estate and the services it will render his
beneficiaries.
Section 3. New Trust Department.—A corporation should not enter
the trust field except with a full appreciation of the responsibilities
involved. A new trust department should be established only if there
is enough potential trust business within the trade area of the institution to justify the proper personnel and equipment.
Section 4. Entering Corporate Trust Field.—Since the need for trust
and agency services to corporations, outside of the centers of population, is much more limited than is that of trust and agency services to
individuals, a trust institution should hesitate to enter the corporate
trust or agency field unless an actual demand for such services is
evident, and the institution is specially equipped to render such service.



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REGULATION F
ARTICLE VII
RELATIONSHIPS

Section 1. With Public.—Although a trust department is a distinctly
private institution in its relations with its customers, it is affected with
a public interest in its relations with the community. In its relations
with the public a trust institution should be ready and willing to give
full information about its own financial responsibility, its staff and
equipment, and the safeguards thrown around trust business.
Section 2. With Bar.—Attorneys-at-law constitute a professional
group that perform essential functions in relation to trust business,
and have a community of interest with trust institutions in the common end of service to the public. The maintenance of harmonious
relations between trust institutions and members of the bar is in the
best interests of both, and of the public as well. It is a fundamental
principle of this relationship that trust institutions should not engage
in the practice of law.
Section 3. With Life Underwriters.—Life underwriters also constitute a group having a community of interest with trust institutions in
the common purpose of public service. Cooperation between trust
institutions and life underwriters is productive of the best mutual
service to the public. It is a principle of this cooperation that trust
institutions should not engage in the business of selling life insurance





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102