Full text of District Notices (Federal Reserve Bank of Dallas) : Revision of Regulation F

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FEDERAL RESERVE BANK
OF DALLAS

Dallas, Texas, November 21, 1989

R E V ISIO N O F REGU LATIO N F

To the Member Banks of the
Eleventh Federal Reserve District:
Regulation F, relating to trust powers of national banks, has been amended effective
November 20, 1939. A copy of the revised regulation is enclosed. It is important that it
be inserted in the indexed binder which we recently sent your bank, in lieu of the
December 31,1937, edition of Regulation F, which should be destroyed.
The only substantial amendment to the regulation relates to the requirements of
section 11. Inquiries received from time to time have indicated that in some instances
the best interests of trusts might be better served if the requirements were somewhat
more flexible. Accordingly, transactions have been excepted from such requirements
where specifically authorized by court order. This exception has been incorporated in the
regulation by substituting for the last sentence of footnote 12 the following footnote
applicable to the entire section:
“ 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.”
For the purpose of clarification, the first sentence of footnote 12 has been revised and
incorporated as a footnote appended to the word “ interests” in subsections (a) and (b)
of section 11.
Certain amendments to section 17 and to the appendix have been adopted in order
to conform with amendments to the Internal Revenue laws.
Yours very truly,
R. R. GILBERT,
President

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

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 November 20, 1939

INQUIRIES REGARDING THIS REGULATION
A n y in q u i r y r e la t in g to th is r e g u la tio n s h o u ld b e a d d r e s s e d to th e
F e d e r a l R e s e r v e b a n k o f t h e d is t r ic t in w h i c h t h e i n q u i r y a r is e s .

CONTENTS
A uth o rity for R egulation ------------------------------------------------------------------------------------

Page
1

Sec .

1.

A p p lic a tio n s ------------

1

S ec .

2.

C onsideration of A pplications _______________________________________

1

S ec .

3.

C onsolidation of T w o or M ore N ational B a n k s _________________

2

S ec .

4.

C onsolidation of S tate B a n k w i t h N ational B a n k ______________

3

S ec .

5. C h ange of N a m e _______________________________________________________

3

Sec .

6.

4
4
4
4
4
5
5

S ec .

7. B ooks and A ccounts ____________________________________________________
5
(a) In general-______
5
(b ) Record of pending litigation________________________________________ 5

S ec .

8.

E x a m in a t io n s of T rust D epartm ent ______________________________

5

Sec .

9.

T rust F u n d s A w a it in g I n v es t m e n t or D istribution _____________
(a) In general________________________________________________________
( b ) Use in conduct of business of trustee bank__________________

6
6
6

Sec . 10.

I n v es t m e n t of T rust F u n d s _________________________________________
(a) Private trusts____________________________________________________
( b ) Court trusts_____________________________________________ ____—
(c) Collective investment of trust funds._______________________

7
7

T rust
(a)
(b)
(c)
( d)
( e)
(/)

D epartm ent and M a n ag e m e n t ________________________________
Separate trust department________________ ___________________
Directors’ supervision of trust department__________________
Trust investment committee__________________________________
Executive officer________________________________________________
Com petent legal counsel______________________________________
Principles of trust institutions_____________________ ._________

Sec . 11. P urchase or Sale of T rust A ssets to or from T rustee B a n k or
I ts D irectors, O fficers or E mployees ___________________
(a) Obligations of trustee bank or its directors, officers, etc.—
( b ) Sale or transfer of trust assets to trustee bank or its direc­
tors, officers, etc______________________________________________
(c) Dealings between trust accounts_____________________________

7
8
8
8
8
9

Sec . 12.

C ustody of T rust S ecurities and I n v e s t m e n t s ___________________

9

Sec . 13.

D eposit of Securities w it h S tate A uthorities ____________________

9

Sec . 14.

C om pensation of B a n k _______________________________________________
(a) In general__________________________________________________
( b ) Officer or employee of bank as co-fiduciary_________________

9
9
10

Sec . 15. I n solvency or V oluntary L iquidation of B a n k ____________________
(a) Insolvency ____________________________________
( b ) Voluntary liquidation__________________________________ ____—

10
10
10

Sec . 16. S urrender of T rust P owers __________ _________ _________ _____________
(a) Procedure ______________________________________________________
(b) W ords “ Trust Com pany” as part of bank’s title-----------------(c) Exam ination of trust department_______________________
( d ) Certificate of Board of Governors of the Federal Reserve
System __________________ _■____________________________________

10
10
11
11
11

Sec . 17. C o m m o n T rust F u n d s ________________ ________________________________
12
(a) In general____ ______________________________________ :...... ....... .......
12
( b ) Com m on Trust
Funds for investment of small amounts ...13
(c) Com m on Trust Funds for general investment---------------------13
(1) Com m on Trust Fund tc be operated under written
plan ____________________________________________________
13
(2) Trust investment committee to approve participation
14
(3) C om m on Trust Fund to be audited annually________
14
(4) Value of assets to be determined periodically_______
15
(5) Miscellaneous limitations --------------------------------------------15
(6) Distribution upon withdrawal of participation_______
16
(7) Segregation of investm ents_____ _______________________
17
(8) M anagem ent of Com m on Trust Fund and fees_____
17
(9) Effect of m istakes______________________________________
17
Sec. 18. B oard F o r m s ________________ ____________________________________________

17

Ap p e n d i x

18

- --

-------—

----------------------------------------„—

....-------------

REGULATION F
A s a m e n d e d e ffe c t iv e N o v e m b e r 20, 1939

TRUST POWERS OF NATIONAL BANKS
A U T H O R IT Y

FOR

R E G U L A T IO N

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.
S E C T IO N

1.

A P P L IC A T IO N S

A national bank desiring to exercise any or all of the powers author­
ized 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 conver­
sion 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 appli­
cation, to the Federal Reserve bank of the district in which the apply­
ing bank is located.
S E C T IO N

2.

C O N S ID E R A T IO N

OF

A P P L IC A T IO N S

In passing upon an application for permission to exercise the fiduci­
ary 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 Fed­
eral 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 avail­
able to the bank;
(c) The general condition of the bank, particularly the ade­
quacy of its net capital and surplus funds in relation to the char­
acter 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 pro­
posed 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.
S E C T IO N

3.

C O N S O L ID A T IO N

OF

TW O

OR

MORE

N A T IO N A L

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 con­
solidation, 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. How­
ever, in order that the records of the consolidated bank may be com­
plete 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

A p p lic a b le

p r o v is io n s o f

th e A c t

of

p r in t e d in t h e A p p e n d i x t o t h is r e g u la t io n ,

C on gress

app roved

N ovem ber

7,

1918,

as a m e n d e d ,

are

3

REGULATION F

issue a certificate to the consolidated bank showing its right to exer­
cise the trust powers theretofore granted by the Board to any of the
national banks taking part in the consolidation.
S E C T IO N

4.

C O N S O L ID A T IO N

OF STATE

BANK

W IT H

N A T IO N A L

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 nom­
inations 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 admin­
ister the specific trusts to which it thus succeeds, but the provision

does not confer upon the consolidated national bank the right to act
generally in fiduciary capacities or to undertake any other trust busi­
ness. Unless the national bank already has a permit from the Board
of Governors of the Federal Reserve. System to act in fiduciary capac­
ities 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.
S E C T IO N

5.

CHANGE OF NAM E

If a national bank has received a permit from the Board of Gov­
ernors 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 M ay 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 S e c t io n 3 o f t h e A c t o f C o n g r e s s a p p r o v e d

N o v e m b e r 7,

1918, as a m e n d e d , is p r in t e d in t h e

A p p e n d ix t o t h is r e g u la tio n .
3 T h e a p p lic a b le p r o v is io n s o f t h e A c t
A p p e n d ix t o t h is r e g u la tio n .

o f C on gress a p p ro v e d

M ay

1, 1886, are p r in t e d

in th e

4

REGULATION F
S E C T IO N

6.

TRUST

DEPARTM ENT

AND

MANAGEM ENT

(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 de­
partment, 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 com­
mittee appointed by such board, and the closing out or relinquish­
ment of all trusts shall be approved or ratified by the board of direc­
tors 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 expe­
rienced 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 retain­
ing 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
*

I t is c o n t e m p la t e d t h a t t h e re sh a ll b e a c o m m it t e e t h e m e m b e r s o f w h ic h sh a ll h a v e a c o n ­

t in u it y o f

r e s p o n s ib ilit y

a p p o in t e d

by

th e

board

f o r t h e d is c h a r g e o f
of

d ir e c t o r s m a y

th e

d u tie s

s e r v e in p la c e

o f t h e c o m m it t e e .
of

H o w e v e r , a lte rn a te s

re g u la r m e m b e r s o f

th e

c o m m it t e e

w h o a re u n a b le t o s e r v e o n a c c o u n t o f v a c a t io n s , illn e ss, o r o t h e r g o o d a n d s u fficien t r e a s o n s i f
t h e m in u t e s o f t h e c o m m it t e e s h o w t h e r e a s o n f o r t h e s e r v ic e o f su ch a lt e rn a t e in p la c e o f
re g u la r m e m b e r .

th e

5

REGULATION F

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 of 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
S E C T IO N

7.

BOOKS

AND

ACCOUNTS

(a) In general.— Every national bank which has received permis­
sion 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. All
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 Gov­
ernors of the Federal Reserve System. The records of the trust depart­
ment 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 connec­
tion with its administration of any trust.
S E C T IO N

8.

E X A M IN A T IO N S

OF

TRUST

DEPARTM ENT

In addition to examinations by examiners appointed by the Comp­
troller 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
5 T h e S t a t e m e n t o f P r in c ip le s o f T r u s t I n s t it u t io n s a p p r o v e d b y

t h e E x e c u t iv e C o u n c il o f t h e

A m e r ic a n B a n k e r s A s s o c ia t io n u n d e r d a t e o f A p r il 11, 1933, is in c lu d e d in t h e A p p e n d ix t o

th is

r e g u la t io n a n d is c o m m e n d e d t o b a n k s o p e r a t in g t r u s t d e p a r t m e n t s .
6 S e c t io n l l ( k ) o f t h e F e d e r a l R e s e r v e A c t , as a m e n d e d b y t h e B a n k in g A c t o f 1935, a p p r o v e d
A u gu st

23,

1935, p r o v id e s

e x a m in a t io n m a d e b y
tru st

d ep a rtm en t o f

th a t

“ The

S ta te

t h e C o m p t r o l le r
s u ch

bank, bu t

of

b a n k in g

a u t h o r it ie s

th e C u rren cy

m ay

have

in s o f a r as su ch

n o t h in g in t h is A c t

sh a ll b e

access

to

rep orts

con stru ed

rep orts

of

r e la te t o

th e

a s a u t h o r iz in g

th e

S t a t e b a n k in g a u t h o r it ie s t o e x a m in e t h e b o o k s , r e c o r d s , a n d a ss e ts o f su ch b a n k . ”
W h i le

t h is p r o v is io n

d e n ie s t o

th e

S t a t e b a n k in g

a u t h o r it ie s

th e

r ig h t

to

e x a m in e

th e

tru st

d e p a r t m e n t o f a n y n a t io n a l b a n k w it h o u t t h e b a n k ’ s c o n s e n t , it d o e s n o t p r o h i b i t t h e b a n k fro m
p e r m it t in g a n in s p e c t io n o f its r e c o r d s b y a n y o n e it d e sire s.

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 dis­
posing 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 neces­
sary 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.
S E C T IO N

9.

TRUST

FU N DS

A W A IT IN G

IN V E S T M E N T

OR

D IS T R IB U T IO N

(а) I n g e n e r a l .— Funds received or held by a national bank as
fiduciary awaiting investment or distribution shall not be held unin­
vested or undistributed by the bank any longer than is reasonably
necessary.
(б) U s e i n c o n d u c t o f b u s i n e s s o f t r u s t e e b a n k . — Funds received or
held by a national bank as fiduciary awaiting investment or distribu­
tion 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 guar­
anteed by the United States as to principal and interest; or
7

T h is d o e s n o t r e lie v e th e b o a r d o f d ir e c t o r s o f a n y r e s p o n s ib ilit y f o r p r o m p t c o n s id e r a t io n o f ,

a n d a c t io n o n , m a t t e r s c r it ic iz e d in t h e la te s t r e p o r t o f e x a m in a t io n b y
C u rren cy o r th e B o a rd

oi
of

o th er

s o u r c e w h ic h

re q u ire s

a c t io n

fo r

th e

S y stem

fu r n is h e d

p r o t e c t io n

of

to

o f th e

f o r t h e p r o m p t c o n s id e r a t io n a n d a c t io n o n a n y m a t t e r c o m in g t o th e a t t e n t io n o f t h e b o a r d
any

G o v e rn o rs o f th e F e d e ra l R e se rv e

t h e C o m p t r o l le r

th e b a n k

d ir e c t o r s f r o m

of

p a r t ie s a t in te re s t.

7

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 na­
tional 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
S E C T IO N

10.

IN V E S T M E N T O F T R U S T FU N D S

(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 instru­
ment creating the trust. When the instrument creating the trust con­
tains provisions expressly authorizing the bank, its officers or its di­
rectors 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.
(b) 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 S e c t io n 5136 o f t h e R e v is e d S t a t u t e s o f t h e U n it e d S ta te s , as a m e n d e d , p r o v id e s t h a t as u sed
in

th a t

s e c t io n

in d e b t e d n e s s

of

“ th e

te r m

any

person,

‘ in v e s t m e n t

s e c u r it ie s ’ s h a ll

c o p a r t n e r s h ip ,

m ean

a s s o c ia tio n ,

or

m a r k e t a b le

c o r p o r a t io n

o b lig a t io n s

in

th e

fo rm

e v id e n c in g
of

bon d s,

n o t e s , a n d /o r d e b e n tu re s c o m m o n ly k n o w n a s in v e s t m e n t se c u r itie s u n d e r s u ch fu r t h e r d e fin it io n
o f th e term

‘ in v e s t m e n t

s e c u r it ie s ’ a s m a y b y

r e g u la t io n

be

p r e s c r ib e d

by

th e

C o m p t r o l le r

of

t h e C u r r e n c y ” ; a n d a c o p y o f t h e r e g u la t io n p r e s c r ib e d b y t h e C o m p t r o lle r u n d e r t h e a u t h o r it y
o f s e c t io n 5136 m a y
9 S e c t io n l l ( k )

b e o b t a i n e d u p o n r e q u e s t m a d e t o h is office.

o f t h e F e d e r a l R e s e r v e A c t , as a m e n d e d , r e q u ir e s t h a t th e n a t io n a l b a n k

shall

s e t a s id e in t h e t r u s t d e p a r t m e n t “ U n it e d S ta te s b o n d s o r o t h e r se c u r itie s a p p r o v e d b y t h e B o a r d
o f G o v e r n o r s o f t h e F e d e ra l R e s e r v e S y s t e m .”
a gen eral a p p ro v a l b y

th e

a n d t h e B o a r d w ill n o t
I f a n a t io n a l b a n k

B oa rd

T h is s u b s e c t io n o f t h is r e g u la t io n is in t e n d e d as

o f all s e c u r itie s w h ic h

c o m p ly

w it h

t h e r e q u ir e m e n ts

th ereof

g iv e s p e c ific a p p r o v a l t o a n y p a r t ic u la r s e cu ritie s.

d e sire s t o s u b s t itu te sec u r itie s f o r se c u r itie s a lr e a d y d e p o s it e d

in t h e t r u s t

d e p a r t m e n t as c o lla t e r a l f o r t r u s t fu n d s u s e d in t h e c o n d u c t o f t h e b u s in e s s o f s u c h b a n k , su ch
a s u b s t it u t io n m a y b e m a d e p r o v i d e d t h e s u b s t it u t e d s e cu ritie s c o m p ly w ith t h e r e q u ir e m e n ts o f
t h is s u b s e c t io n a n d t h e s u b s t it u t e d sec u r itie s a n d o t h e r se c u r itie s s o d e p o s it e d as c o lla t e r a l a t all
tim e s a r e a t le a st e q u a l in m a r k e t v a lu e t o t h e a m o u n t o f t r u s t fu n d s s o u s e d in t h e c o n d u c t
o f t h e b a n k ’s b u s in e s s .

REGULATION F

8

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 corpo­
rate or individual fiduciaries in the State in which the bank is acting
may lawfully invest.
(c) Collective investment of tru st10 funds.— Funds received or held
by a national bank as fiduciary shall not be invested collectively 11
except as permitted in section 17 of this regulation.
S E C T IO N

11. P U R C H A S E
OR

IT S

OR

SALE OF T R U S T ASSETS TO O R F R O M

D IR E S T O R S , O F F IC E R S

OR

TRUSTEE

BANK

E M P L O Y E E S 12

(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 obli­
gations of, or property acquired from, affiliates of the bank.
( b ) Sale or transfer of trust assets to trustee bank or its directors,
officers, etc.-—Trust assets shall not be sold or transferred to the na­

tional 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 U n le s s t h e c o n t e x t o t h e r w is e in d ic a te s , th e t e r m
oth er

p art

of

a u t h o r iz e d t o

t h is

r e g u la t io n ,

r e fe r s

to

any

e n te r i n t o u n d e r th e p r o v is io n s o f

11 T h is d o e s n o t p r e v e n t t h e b a n k

fr o m

“ t r u s t ,”

fid u c ia r y
s e c t io n

ll(k )

in v e s t in g t h e fu n d s

e s t a t e lo a n o f t h e k in d w h ic h c o u ld b e m a d e b y

as u sed in t h is s e c t io n

r e la tio n s h ip

w h ic h

a

o r in a n y

n a t io n a l

bank

is

o f th e F ed era l R e se rv e A c t.
o f s e v e r a l tr u s t s in a s in g le rea l

t h e b a n k u n d e r t h e p r o v is io n s o f s e c t io n 24 o f

th e F e d e r a l R e s e r v e A c t , a s a m e n d e d , i f t h e b a n k o w n s n o p a r t ic ip a t io n in t h e lo a n a n d h a s n o
in te re st th e r e in e x c e p t in its c a p a c it y a s fid u c ia r y .
12 T h e r e q u ir e m e n ts o f t h is s e c tio n s h a ll n o t b e d e e m e d t o p r o h ib it t h e m a k in g o f a n y i n v e s t ­
m e n t s o r t h e c a r r y in g

out o f

any

t r a n s a c t io n s w h ic h

c r e a t in g th e tru s t o r a r c s p e c ific a lly a u t h o r iz e d b y

a re

e x p r e s s ly

r e q u ir e d

by

th e

in s t ru m e n t

c o u r t o rd e r.

13 U n d e r r e c o g n iz e d p r in c ip le s o f s o u n d p r a c t ic e r e g a r d in g t h e h a n d lin g o f t r u s t a sse ts, a t r u s ­
tee o r o t h e r f id u c ia r y s h o u ld n o t h a v e a n y in t e re s t ,

d ir e c t o r in d ir e c t , in t h e a s s e ts o f a t r u s t

e x c e p t as a f id u c i a r y ;

s e c t io n

and

t h e r e q u ir e m e n ts o f t h is

c o n t e m p la t e

t h a t t h e n a t io n a l

bank

w ill n o t in v e s t t r u s t fu n d s in t h e s t o c k o r o b lig a t io n s o f , o r p r o p e r t y a c q u ir e d fr o m , a n y o r g a n i ­
z a t io n in w h ic h officers, d ir e c t o r s , o r e m p lo y e e s o f t h e b a n k h a v e su ch a n in te re s t as m ig h t a ffe c t
t h e e x e rcise o f t h e b e s t ju d g m e n t o f t h e m a n a g e m e n t o f t h e b a n k in in v e s t in g t r u s t f u n d s a n d
t h a t th e n a t io n a l b a n k
o fficers,

w ill n o t sell o r

t r a n s fe r

d ir e c t o r s , o r e m p lo y e e s o f t h e b a n k h a v e

t r u s t a sse ts t o
su ch

any

o r g a n iz a t io n

a n in te re s t as m ig h t

in w h ic h

a ffe c t

th e

th e

e x e r c is e

o f t h e b e s t ju d g m e n t o f t h e m a n a g e m e n t o f t h e b a n k in s e llin g o r t r a n s fe r r in g t r u s t a ssets.

9

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.
S E C T IO N

12.

CU STOD Y

OF

TRUST

S E C U R IT IE S

AND

IN V E S T M E N T S

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.
S E C T IO N

13.

D E P O S IT

OF

S E C U R IT IE S

W IT H

STATE

A U T H O R IT IE S

Whenever the laws of a State require corporations acting in a fidu­
ciary 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 Re­
serve 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.
S E C T IO N

14.

C O M P E N S A T IO N

OF

BANK

(a)
In general.— If the amount of the fee or compensation for act­
ing 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 reason­
able 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

T h is

does n o t preven t

th e b a n k fro m

in v e s t in g t h e

fu n d s o f

se v e ra l t r u s t s in a s in g le real

e s t a t e lo a n o f t h e k in d w h ic h c o u ld b e m a d e b y t h e b a n k u n d e r t h e p r o v is io n s o f s e c t io n 24 o f
t h e F e d e r a l R e s e r v e A c t , a s a m e n d e d , i f t h e b a n k ow n s n o p a r t ic ip a t io n in t h e lo a n
in terest th e r e in e x c e p t as tr u s te e o r o t h e r fid u cia r y .

and

has no

10

REGULATION F

(5) 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.
S E C T IO N

15.

IN S O L V E N C Y

OR

VOLUNTARY

L IQ U ID A T IO N

OF BAN K

(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 in­
structions 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.
(6) 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 pro­
ceedings to properly appointed substitute fiduciaries.
S E C T IO N

16.

SU RREN DER

OF TRU ST POW ERS

(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 sur­
render 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 Fed­
eral 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 certif­
icates 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 destruc­
tion shall be filed in lieu of such lost or destroyed permit or certificate.
(b) Words “ Trust Company” as part of bank’s title.— Before issuing
the certificate described in subsection (d) of this section of this regu­
lation, the Board will require any national bank which desires to sur­
render 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 o f trust department.— Upon receipt of the docu­
ments 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 depart­
ment 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 com­
pletely performed and that the bank has been discharged or other­
wise 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 the
trust department of such national bank in order to obtain the informa­
tion referred to in this subsection.
(d) Certificate of Board of Governors of the Federal Reserve Sys­
tem.— 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.15
S E C T IO N

17.

COMMON

TRUST

FUNDS

(a) In general.—Blinds 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.
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.10
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 opera­
tion of such Common Trust Funds as investment trusts for other than
strictly fiduciary purposes is hereby prohibited. No bank administer­
ing 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 per­
mit any funds of any trust to be invested in a Common Trust Fund
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 sub­
ject to the following requirements:
15 S e c t io n l l ( k ) o f t h e F e d e r a l R e s e r v e A c t p r o v id e s t h a t , u p o n t h e issu a n ce o f s u ch a c e r t ific a t e
b y t h e B o a r d , “ s u ch b a n k ( 1 ) sh a ll n o lo n g e r b e s u b je c t t o t h e p r o v is io n s o f t h is s u b s e c t io n o r
t h e r e g u la t io n s o f t h e B o a r d o f G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y s t e m m a d e p u r s u a n t t h e r e t o ,
( 2 ) sh a ll b e e n t it le d t o h a v e r e tu r n e d t o it a n y s e cu ritie s w h ic h it m a y h a v e d e p o s it e d w it h t h e
S t a t e a u t h o r it ie s f o r t h e p r o t e c t io n o f p r iv a t e
a fte r a n y o f

th e p ow ers

n ew p e r m it t o

g ra n ted b y

e x e rcise s u ch

o r co u rt tru sts, a n d

t h is s u b s e c t io n

p ow ers p u rsu an t to

16 A s u s e d in t h is r e g u la t io n , t h e t e r m

(3 ) sh a ll n o t e x e r c is e t h e r e ­

w it h o u t fir s t a p p ly i n g

fo r a n d

o b t a in in g a

t h e p r o v is io n s o f t h is s u b s e c t io n .”

“ g u a r d ia n ”

m e a n s g u a r d ia n o r c o m m it t e e

o f th e e sta te

o f a n in fa n t , i n c o m p e t e n t , o r a b s e n te e , b y w h a t e v e r n a m e k n o w n in t h e S t a t e in w h ic h
t ic u la r n a tio n a l b a n k is l o c a t e d .
17 F o r a p p lic a b le p r o v is io n s o f t h e I n te r n a l R e v e n u e C o d e , see A p p e n d ix .

a p ar­

REGULATION F

13

(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, ac­
quires 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 accord­
ance with the provisions of this section;
(3) A bank administering a Common Trust Fund shall not
have any interest us 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.— Sub­
ject to all other provisions of this regulation except subsection (c) of
this section, cash balances received or held by a bank in its capacity
as trustee, executor, administrator, or guardian, which the bank con­
siders to be individually too small to be invested separately to ad­
vantage 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 subsection (b) of this sec­
tion, funds received or held by a bank in its capacity as trustee, ex­
ecutor, administrator, or guardian may be invested in participations
in a Common Trust Fund. 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
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 Gov­
ernors of the Federal Reserve System pertaining to the collec18

A b a n k sh a ll n o t b e d e e m e d t o h a v e a n in te re s t in a ssets in w h ic h c o lle c t iv e in v e s t m e n ts a re

m a d e m e r e ly b e c a u s e o f t h e f a c t t h a t th e b a n k ow n s in it s o w n r ig h t o t h e r s t o c k s , o r b o n d s o r
o t h e r o b lig a t io n s o f a p e r s o n , fir m , o r c o r p o r a t io n , t h e s t o c k s , o r b o n d s o r o t h e r o b lig a t io n s
w h ic h

a re a m o n g t h e a ss e ts o f a C o m m o n

T ru st Fu nd.

of

14

REGULATION F

tive investment of trust funds by national banks, and shall con­
tain full and detailed provisions not inconsistent with the pro­
visions 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 with­
drawal of participations in the Common Trust Fund, the audit­
ing 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 bank­
ing hours, to any person having ap 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 invest­
ment 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 a participation in any Common Trust Fund, the bank
shall send a notice of such investment to each person to whom
an accounting ordinarily would be rendered.
(3) Common Trust Fund to be audited annually.— A bank
administering a Common Trust Fund shall, at least once during
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 com­
mittee of the bank as of the date of the audit, a statement of
purchases, sales and any other investment changes and of in­

REGULATION F

15

come 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 an ac­
counting 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 busi­
ness days subsequent to the date of such determination. No
participation shall be admitted or withdrawn unless, in accord­
ance with provisions of the Plan, prior to the date of the de­
termination of such valuation, notice of intention to par­
ticipate 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 with­
drawal 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 ad­
ministers more than one Common Trust Fund, no investment
shall be made which would cause the aggregate investment of
funds of any one trust in all such Common Trust Funds to
exceed such limitations. 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 con­
sidered as one.

16

REGULATION F

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 invest­
ment in stocks, or bonds or other obligations issued or guaran­
teed 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 Com­
mon 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 market­
able securities 10 such part of the assets of the Common Trust
Fund as shall be deemed by the bank to be necessary to pro­
vide 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 per­
centage of the value of the assets of a Common Trust Fund is
composed of cash and readily marketable securities; and if such
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 se­
curities, 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 dis­
tribution upon all participations is not prohibited.
(6)
Distribution upon withdrawal of participation.— When par­
ticipations are withdrawn from a Common Trust Fund distribulu A
is

th e

as t o

r e a d ily

m a r k e t a b le

s u b je c t
m ake

of

s e c u r ity

freq u en t

w it h in

d e a lin g s

( a ) t h e p r ic e e a s ily a n d

realize u p o n b y

sale a t a n y tim e.

in

th e

m e a n in g

of

read y

m a rk ets

w it h

d e fin it e ly

t h is

s e c t io n

s u ch

a s c e r t a in a b le a n d

m eans

freq u en t
(b )

th e

a

s e c u r it y

q u o ta tio n s

s e c u r it y

of

w h ic h
p r ice

i t s e lf e a s y t o

REGULATION F

17

tions 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 Com­
mon 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 invest­
ment 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 Com­
mon 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 in­
curred 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.
(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.
S E C T IO N

18.

BOARD

FORM S

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 com­
panies, 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 examina­
tion 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 pur­
poses. 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.
18

KEGULATION F

19

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 corpora­
tion 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 na­
tional 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 require­
ments 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 Sys­
tem a certified copy of a resolution of its board of directors sig­
nifying 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 sub­
section, 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 Sys­
tem, 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

20

REGULATION F

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 pro­
mulgate 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 Comp­
troller 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 direc­
tors of each association or bank proposing to consolidate, and
which agreement shall be ratified and confirmed by the affirma­
tive 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 consoli­
dation 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 con­
stituent 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 trans­
ferred to and vested in such consolidated national banking asso­
ciation 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

REGULATION F

21

otherwise, shall hold and enjoy the same and all rights of prop­
erty, franchises, and interests, including appointments, designa­
tions, 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 con­
tained 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 asso­
ciations, nor shall any such consolidated association be removed
solely because of the fact that it is a national banking associa­
tion. * * *.
The Act of Congress approved M ay 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 Comp­
troller 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 con­
strued as in any manner to release any national banking associa­
tion 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 regula­
tion.
S E C . 169.

COM M ON

TR U S T FU N DS.

(a) D e f in it io n s .— The term “ common trust fund” means a
fund maintained by a bank (as defined in section 104) —

22

REGULATION F

(1) exclusively for the collective investment and reinvest­
ment 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.
(b) T a x atio n of C om m o n T rust F u n d s .— A common trust
fund shall not be subject to taxation under this chapter, subchap­
ters 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 corpora­
tion.
(c) I ncom e

of

P articipants in F un d —

(1) I nclusions in N et I n c o m e .— 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 in­
come or the ordinary net loss of the common trust fund,
computed as provided in subsection (d).
(2) C redit for P artially E x e m p t I nter est .— 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) C o m putation of C o m m o n T rust F und I nc o m e .— 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 long­
term 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 al­
lowed by section 23 (o) shall not be allowed.
(e) A dm ission and W it h d r a w a l .— No gain or loss shall be
realized by the common trust fund by the admission or with­

REGULATION F

23

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.
( /) R eturns b y B a n k .— 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 in­
come 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 ) D ifferen t T axable Y ears of C om m on T rust F und and
P a r tic ipa n t .— 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.
S E C . 104.

BANKS AND TRU ST

C O M P A N IE S .

(a) D e f in it io n .— 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 Dis­
trict 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 simi­
lar 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 ex­
amination by State, Territorial or Federal authority having super­
vision over banking institutions.
A S T A T E M E N T O F P R IN C IP L E S O F T R U S T IN S T IT U T IO N S

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 Asso­
ciation on April 11, 1933.
FOREW ORD

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—-

24

REGULATION F

namely, fidelity. Policies predicated upon this principle have for their
objective its expression in terms of safety, good management, and per­
sonal 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 be­
come an integral part of the social and economic structure of the
United States makes the principles of such institutions a matter of
public interest.
A R T IC L E I
D E F IN IT IO N

OF TERM S

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 corpora­
tions; public, educational, social, recreational, and charitable institu­
tions; and units of government. It is advisable that a trust institu­
tion should limit the functions of its trust department to such services.
A R T I C L E II
ACCEPTANCE

O F T R U S T B U S IN E S S

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.
A R T I C L E III
A D M IN IS T R A T IO N

OF

TRUST

B U S IN E S S

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 ulti­
mate beneficiaries. It should be the policy of trust institutions that

REGULATION F

25

all personal trusts should be under the direct supervision of and that
beneficiaries should be brought into direct contact with the administra­
tive 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 administra­
tion of the trust; to acquaint the beneficiaries with all material facts
in connection with the trust; and, in administering the trust, to exer­
cise the care a prudent man familiar with such matters would exercise
as trustee of the property of others, adhering to the rule that the trus­
tee is primarily a conserver.
Section 4. Corporate Trust Business.— In the administration of cor­
porate 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 funda­
mental 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.
A R T IC L E IV

O P E R A T IO N O F T R U S T D E P A R T M E N T S

Section 1. Separation of Trust Properties.— The properties of each
trust should be kept separate from those of all other trusts and sep­
arate 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 respon­
sibility 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 dis­
cretion of the trustee, the latter should be governed by considerations

26

REGULATION F

of the safety of principal and dependability of income and not by hope
or expectation of unusual gain through speculation. However, a trus­
tee should not be content with safety of principal alone to the dis­
regard 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.
A R T IC L E V
C O M P E N S A T IO N F O R T R U S T S E R V IC E

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.
A R T IC L E VI
P R O M O T IO N A L E F F O R T

Section 1. Advertising.— A trust institution has the same right as
any other business enterprise to advertise its trust services in appro­
priate 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 institu­
tions or individuals, and the advertisements of all trust institutions
should be mutually helpful.
Section 2. Personal Representation.— The propriety of having per­
sonal representatives of trust departments is based upon the same prin­
ciple as that of advertising. Trust business is so individual and dis­
tinctive 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 institu­
tion 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 popula­
tion, 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.

REGULATION F

27

A R T IC L E V II
R E L A T IO N S H IP S

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 com­
mon 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 consti­
tute 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.