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FEDERAL RESERVE BANK
OF N E W YORK
r Circular N o. 5 0 5 S
L
July 7, 1961
AMENDED REGULATION F
Trust Powers of National Banks
T o A ll Banks and Trust Companies
in the Second Federal R eserve D istrict:
Enclosed is a copy of Regulation F o f the Board o f Governors of
the Federal Reserve System, as amended effective May 18, 1961. The
amended regulation incorporates the outstanding amendment, effective
June 13, 1955, and an amendment, effective May 18, 1961, to the pro
visions o f Section 12, Custody o f Trust Securities and Investments.
The latter amendment permits national banks to earmark trust securi
ties and investments fo r vault custody purposes as an alternate method
o f identifying the securities of separate trusts pursuant to the require
ments of Section 12. In addition, the amended regulation has been
reprinted to conform with the style o f the Code o f Federal Regulations.
Additional copies of the enclosure will be furnished upon request.
A
lfred
H
ayes,
President.
BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM
TRUST POWERS
OF NATIONAL BANKS
T
REGULATION F
(1 2 CFR 2 0 6 )
As am ended effective May 18, 1961
IN QU IRIES
R E G A R D IN G
T H IS
R E G U L A T IO N
Any inquiry relating to this regulation should be addressed to the
Federal Reserve Bank of the district in which the inquiry arises.
CONTENTS
Page
A u t h o r i t y f o r R e g u l a t i o n .......................................................................................................................
1
S ec .
206.1.
A p plications ................................................................................................
1
S ec .
206.2.
C onsideration
of
A pplications ..........................................................
2
S ec.
2063.
C onsolidation
of
Two
2
S ec.
206.4.
C onsolidation
of
S tate B a n k
S ec.
206.5.
C hange
S ec .
206.6.
T rust
(a )
(b)
(c)
(d )
(e )
(/)
or
M ore N ational B a n k s .....................
N ational B a n k .............
3
N a m e ......................................................................................
4
D epartment and M an a g e m e n t ............................................
Separate trust departm ent......................................................
D irectors’ supervision o f trust departm ent.......................
Trust investm ent co m m itte e ..................................................
E xecu tive officer.........................................................................
C om peten t legal c o u n s e l......................................................
Principles o f trust in stitu tions..............................................
4
4
4
4
5
5
5
S ec. 206.7.
B ooks and A ccounts ...............................................................................
( a) In gen eral............................. ........................................................
( b ) R ecord o f pending litiga tion ................................................
6
6
6
Sec .
206.8.
E x a m in a t io n s
T rust D epartm ent ............................................
6
S ec .
206.9.
T rust F unds A w aiting I nvestm ent or D istribu tion ...............
( a) In gen eral......................................................................................
( b ) Use in conduct o f business o f trustee b a n k ...................
7
7
7
S ec. 206.10.
I nvestm ent of T rust F u n d s .............................................................
(а ) Private trusts.............................................................................
( б ) Court trusts..................................................................................
(c ) C ollective investm ent o f trust fu n d s...............................
8
8
8
9
S ec . 206.11.
P urchase
of
of
w it h
or S ale of T rust A ssets to or from T tustee B a n k
or I ts D irectors, O fficers or E m ployees ..............
( a) O bligations o f trustee bank or its directors, officers, etc.
( b) Sale or transfer o f trust assets t o trustee bank or its
directors, officers, e tc ............................................................
( c ) D ealings between trust a c c o u n ts .........................................
10
10
S ec. 206.12.
C ustody
I n v e s t m e n t s .......................
10
S ec. 206.13.
Sec. 206.14.
D eposit of S ecurities w it h State A uth or itie s .........................
C ompensation of B a n k .........................................................................
(а ) In general ....................................................................................
( б ) Officer or em ployee o f bank as co-fid u ciary...................
11
11
11
11
Sec . 206.15.
I nsolvency or V oluntary L iquidation of B a n k .......................
(a ) I n s o l v e n c y ; ...................................................................
( b ) V oluntary liqu idation ......................................................... . .
11
11
12
Sec. 206.16.
S urrender of T rust P o w e r s .................................................................
(a ) P r o c e d u r e ......................................................................................
( b ) W ords “ T rust C om p a n y” as part o f bank’s tit le ..........
(c ) Exam ination o f trust dep artm ent........................................
( d ) Certificate o f Board o f G overn ors o f the Federal R e
serve System .........................................................................
12
12
12
13
S ec . 206.17.
C o m m o n T rust F u n d s ...........................................................................
( а) In gen eral......................................................................................
( б ) C om m on Trust Funds for investm ent o f small am ounts
(c ) C om m on Trust Funds for general investm ent ...........
(d ) C om m on Trust Funds com posed principally o f m ort
gages (M ortgage Investm ent Funds) .........................
B oard F o r m s ..............................................................................................
14
14
15
15
Sec. 206.18.
of
T rust S ecurities
9
9
and
A ppendix — Statutory P rovisions ...............................................................................
13
20
26
27
R E G U L A T IO N F
(12 C F R 206)
As amended effective M ay 18, 1961
TRUST POWERS OF NATIONAL BANKS*
A U T H O R IT Y F O R 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.
SE C T IO N 206.1— APP LIC ATIO N S
(а) A national bank desiring to exercise any or all of the powers
authorized by section l l ( k ) o f the Federal Reserve A ct, as amended
(40 Stat. 968, 46 Stat. 814, 49 Stat. 722; 12 U.S.C. 2 4 8 (k )), shall
make application to the Board o f 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 o f such
powers, the applications should be made on Form 61b.
(б ) In the case of the organization of a new national bank, the
conversion of a State bank or trust com pany into a national bank, or
the consolidation o f two or more national banks or of a State bank or
trust com pany with a national bank under the charter of the latter,
when none o f 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 o f such organization, conversion or consolidation. Such
application may be made by the organizers in the case o f a new
national bank, by the State bank or trust com pany in the case o f a
conversion, and by the national bank the charter o f which is to be
retained in the case of a consolidation.
*
The text corresponds to the Code o f Federal Regulations, T itle 12, C hapter II, P a rt 206;
cited as 12 C F R 206.
1
2
REGULATION F
S e c s . 2 0 6 .1 - 2 0 6 3
(c) 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.
SE C TIO N 206.2— C O N S ID E R A T IO N OF APPLICATIO N S
In passing upon an application for permission to exercise the fiduci
ary powers authorized by section 11 (k ) o f the Federal Reserve A ct,
as amended (40 Stat. 968, 46 Stat. 814, 49 Stat. 722; 12 U.S.C. 2 4 8 (k )),
the Board of Governors o f 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 A ct, 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 o f any or
all o f such powers would be in contravention of State or local law;
( b ) The needs of the community for trust service o f the kind
applied for and the probable volume of such trust business avail
able to the bank;
(c) The general condition o f 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 o f the supervision to be given to the proposed
trust activities, including the qualifications and experience o f the
members o f the proposed trust investment com mittee;
( /) The qualifications, experience and character of the pro
posed executive officer or officers o f 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.
SE C T IO N 206.3— C O N SO LID A TIO N OF T W O OR M O R E N A T IO N A L
BANKS
Where two or more national banks consolidate under the provisions
o f the A ct of Congress approved Novem ber 7, 1918, as amended (40
S e c s . 2 0 6 .3 - 2 0 6 .4
REGULATION F
3
Stat. 1043, 44 Stat. 1225, 48 Stat. 190, 49 Stat. 718, 719; 12 U.S.C. 33,
34, 34a), and any one of such banks has, prior to such consolidation,
received a permit from the Board of Governors o f 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 opera
tion 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. H ow
ever, in order that the records of the consolidated bank may be com
plete and that it may have convenient evidence o f its right to exercise
trust powers, the Board, upon receipt o f advice from the Comptroller
o f the Currency that the consolidation has been consummated, will
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.
SE C TIO N 206.4— C O N SO LID A TIO N OF ST A T E B A N K W IT H N A T IO N A L
BANK
Section 3 o f the A ct of Congress approved N ovem ber 7, 1918, as
amended (44 Stat. 1225, 48 Stat. 190, 49 Stat. 719; 12 U.S.C. 34a),
authorizes any bank, trust com pany, savings bank, or other bank
ing institution incorporated under the laws of any State or in the
D istrict o f Colum bia to be consolidated directly with a national bank
located in the same State, county, city, town, or village under the
charter o f 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 o f 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
d o es n o t c o n fe r u p o n th e c o n s o lid a te d n a tio n a l b a n k th e rig h t to a c t
g e n e r a lly in fid u c ia r y c a p a c itie s o r to u n d e r ta k e a n y o th e r tru s t b u si
n ess. Unless the national bank already has a permit from the Board
o f Governors o f the Federal Reserve System to act in fiduciary capac
ities which is in force at the time o f 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.
REGULATION F
4
S e c s . 2 0 6 5 -2 0 6 .6
SE CTIO N 206.5— C H A N G E OF N A M E
If a national bank has received a permit from the Board of G ov
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 o f the A ct of Congress approved M ay 1, 1886 (24 Stat.
18; 12 U.S.C. 30, 31, 3 2), 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 o f the bank may be complete and that it may
have convenient evidence of its right to exercise trust powers under its
new name, the B oard, upon receipt of advice from the Com ptroller 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.
SE C TIO N 206.6— T R U ST D E P A R T M E N T M A N A G E M E N T
(a) Separate trust department.— Every national bank which o b
tains permission from the Board o f 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 o f trust department.— The board of
directors is responsible for the investment o f trust funds by the bank,
the disposition o f 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
o f directors for the conduct of the trust department. The acceptance
o f all trusts shall be approved by the board o f 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. A ny such approval or ratification shall be
recorded in the minutes of the board o f 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 experi
S e c . 2 0 6 .6
REGULATION F
5
enced officers or directors o f the hank.4 All investments of trust funds
by the trust department of every such national bank shall be made,
retained or disposed o f only with the approval o f the trust investment
com mittee; and such committee shall keep minutes o f all its meetings,
showing the disposition o f 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 o f them ; and a report of all such reviews, together
with the action taken as a result thereof, shall be noted in the minutes
o f the trust investment committee. Such committee m ay have such
additional duties relating to the trust department as may be prescribed
by the board o f directors.
(d ) Executive officer.— Before any such national bank undertakes
to act
under
officer
duties
in any fiduciary capacity, its trust department shall be placed
the management and immediate supervision of an executive
or officers qualified and competent to administer trusts, and the
of such officer or officers shall be prescribed by the board of
directors o f the bank. Such duties shall be evidenced by the bylaws
of the bank or by a resolution duly adopted by and entered in the
minutes o f 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, em ploy 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
1 I t is contem plated that there shall be a com m ittee the members o f which shall have a con
tinuity o f responsibility fo r the discharge o f the duties o f the com m ittee. H owever, alternates
appointed by the board o f directors m ay serve in p lace o f regular members o f the com m ittee
who are unable to serve on account o f vacations, illness, o r other good and sufficient reasons if
the m inutes o f the com m ittee show the reason fo r the service o f such alternate in place o f the
regular member.
8 T he statem ent o f principles o f trust institutions approved by the Executive Council o f the
Am erican Bankers A ssociation is com m ended to banks operatin g trust departm ents.
6
REGULATION F
Secs. 2 0 6 .7 - 2 0 6 . 8
SE C TIO N 206.7— BOOKS A N D AC CO U N TS
(а) 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 m ay be
required by the Comptroller o f the Currency or the Board of G ov
ernors of the Federal Reserve System. The records o f the trust depart
ment shall contain full information relating to each trust.
(б ) Record o f pending litigation.— E very such national bank shall
keep an adequate record of all litigation pending against it in connec
tion with its administration of any trust.
SE C T IO N 206.8— E X A M IN A T IO N S OF T R U ST D E P A R T M E N T
(a)
In addition to examinations by examiners appointed by the
Comptroller of the Currency 6 or designated by the Board o f G ov
ernors 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 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 thor
ough 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 2 0 6 .6 (c );
(2) Whether trust funds awaiting investment or distribution
have been held uninvested or undistributed any longer than was
reasonably necessary.
8 Section 11 (k ) o f the Federal R eserve A ct, as amended b y the B anking A c t o f 1936,
approved A ugu st 23, 1935 (49 Stat. 722 ; 12 U .S.C. 2 4 8 (k )), provides that “ The State banking
authorities m ay have access to reports o f exam ination m ade by the C om ptroller o f the
C urrency in so fa r as such reports relate t o the trust departm ent o f such bank, but nothing
in this A ct shall be construed as authorizing the State banking authorities to exam ine the
books, records, and assets o f such ban k.”
W hile this provision denies to the State banking authorities the righ t t o exam ine the trust
departm ent o f any national bank w ithout the bank’s consent, it does not prohibit the bank
from perm itting an insoection o f its records by any one it desires.
S e c s . 2 0 6 .8 - 2 0 6 . 9
REGULATION F
7
(6)
Such committee shall prom ptly 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 m ay be
necessary to correct any unsatisfactory conditions. The board of
directors shall give due consideration to such report and recommen
dation, together with the latest report o f examination by the C om p
troller of the Currency or examiners designated by the Board of
Governors o f the Federal Reserve System 7 furnished to the bank, and
shall take such steps as are appropriate to correct any criticized
matters. A report o f the audits and examination required under this
section, together with the action taken thereon, shall be noted in the
minutes o f the board o f directors; and such report shall be made a
part of the records o f the bank.
SE C TIO N 206.9— T R U ST FU N D S 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) In general.— 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 ) Use in conduct o f business of trustee bank.— Funds received
or held by a national bank as fiduciary awaiting investment or dis
tribution 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 o f indebtedness or other
direct obligations of the United States, or obligations fully guar
anteed by the United States as to principal and interest; or
(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 o f the Revised
7 This does n ot relieve the board o f directors o f any responsibility f o r p ro m p t consideration
o f, and action on, m atters criticized in the latest rep ort o f exam ination b y the Com ptroller
o f the Currency o r the Board o f Governors o f the Federal Reserve System furnished t o the
bank o r fo r the p rom p t consideration and action on any m atter com ing to the attention o f
the board o f directors from any other source which requires action f o r the p rotection o f
parties a t interest.
REGULATION F
8
S e c s . 2 0 6 .9 - 2 0 6 . 1 0
Statutes o f the United States, as amended 8 (48 Stat. 184, 49 Stat.
709; 12 U.S.C. 24).
The securities so deposited as collateral shall be owned b y 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 o f the bank’s
business.9
SE C TIO N 200.10— IN V E S T M E N T OF T R U ST FU N D S
(а) 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 o f law applicable to fiduciaries, be invested
prom ptly and in strict accordance with the will, deed or other instru
ment 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.
(б ) 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 invest
* Section 6136 o f the Revised Statutes o f the U nited States, as amended, provides that as
used in that section "th e term ‘investm ent securities’ shall mean m arketable obligations
evidencing: indebtedness o f any person, copartnership, association, o r corporation in the form
o f bonds, notes, a n d /o r debentures com m only know n as investm ent securities under such
further definition o f the term ‘investm ent securities’ as m ay by regulation b e prescribed by
the C om ptroller o f the Currency” ; and a cop y o f the regulation prescribed b y th e ComptroDer
under the authority o f section 5136 m ay b e obtained upon request made to his office.
•SecUon l l ( k ) o f the Federal Reserve A ct, as amended (40 S ta t 969, 12 U .S .C . 2 4 8 (k )).
requires that the national bank shall set aside in the trust departm ent “ U nited States bonds
o r other securities approved by the B oard o f Governors o f th e Federal Reserve System .” This
paragraph is intended as a general approval b y the B oard o f all securities which com ply with
the requirem ents thereof and the B oard will not give specific a pproval to any particular
securities.
I f a national bank desires to substitute securities fo r securities already deposited in the trust
departm ent as collateral fo r trust funds used in the conduct o f the business o f such bank, such
a substitution m ay be m ade provided the substituted securities com ply w ith the requirem ents
o f this paragraph and the substituted securities and other securities so deposited as collateral
at all times are a t least equal in m arket value to the am ount o f trust fun ds so used in the
conduct o f the bank's business.
S e t s . 2 0 6 .1 0 - 2 0 6 .1 1
REGULATION F
9
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 o f 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 trust10 funds.— Funds received or
held by a national bank as fiduciary shall not be invested collectively 11
except that (1) such collective investments m ay be made in accordance
with § 206.17, and (2) funds of a trust which forms part of a pension,
profit-sharing, or stock bonus plan o f an employer for the exclusive
benefit of his employees or their beneficiaries and which is exempt
from Federal incomes taxes under the Internal Revenue Code may be
invested collectively with funds of other such pension, profit-sharing, or
stock bonus plan trusts if such collective investment is specifically
authorized by the instrument creating the trust or by court order.1ln
SE C T IO N 206.11— PU RCH ASE O R SALE OF T R U ST ASSETS TO O R FRO M
T R U ST E E B A N K OR ITS D IR ECTO R S, O FFICERS OR E M P L O Y E E S 12
(a) Obligations o f 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
10 Unless the con text otherw ise indicates, the term “ trust,” as used in this section o r in any
other p a rt o f this regulation, refers to any fiduciary relationship which a national bank is
authorized to enter into under the provisions o f section 11 ( k ) o f the Federal Reserve Act.
11 This does not prevent the bank from investing the funds o f several trusts in a single real
estate loan i f the bank owns n o participation in the loan and has n o interest therein except
in its capacity as fiduciary.
u “ Section 584 o f the Internal Revenue Code o f 1954 provides that a com m on trust fund
m aintained in con form ity with rules and regulations o f the Board o f Governors o f the
Federal Reserve System "p erta in in g to the collective investm ent o f trust funds by national
banks” and m eeting certain other requirem ents shall not be subject to Federal incom e tax
ation. T h e rules and regulations o f the Board o f Governors fo r the purposes o f section 584
are contained solely in $ 206.17 ; and the perm ission contained in paragraph ( c ) (2 ) o f f 206.10
is not intended to con fer exem ption from Federal incom e taxation under section 584.
13 The requirem ents o f this section shall not be deemed to p rohibit the m aking o f any in
vestments o r the ca rryin g out o f any transactions which are expressly required by the
instrum ent creating the trust or are specifically authorized by cou rt order.
10
REGULATION F
S e c s . 2 0 6 .1 1 - 2 0 6 .1 2
or its directors, officers, or employees, or their interest,13 or in stock or
obligations of, or property acquired from, affiliates of the bank.
( b ) Sale or transfer o f trust assets to trustee bank or its direc
tors, officers, etc.— Trust assets shall not be sold or transferred to the
national bank, to its directors, officers, or employees, or their inter
ests,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 con
tingent or potential liability to a trust and desires to relieve itself from
such liability, such a sale or transfer m ay be made with the approval
o f the board o f directors; P r o v id e d , 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.
(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.
SE C TIO N 206.12— C U STO D Y OF T R U S T SE C U R ITIES A N D
IN V E S T M E N T S
(a) The securities and investments of each trust shall be kept sepa
rate from the properties of the bank and shall be placed in the joint
custody of two or more officers or employees o f the bank designated for
that purpose by the board of directors of the b a n k ; and all such officers
and employees shall be adequately bonded.
(b) The securities and investments o f each trust shall be either—
(1) K ept separate from those of all other trusts,14 or
(2) Earmarked in a manner that adequately identifies the trust
to which the particular security belongs. In such case, the
records of the trust department o f the bank shall contain
a full description, including bond and certificate numbers,
of the securities so held.
13 U nder recognized principles o f sound p ra ctice regarding the handling o f trust assets,
a trustee o r oth er fiduciary should n ot have any interest, direct o r indirect, in the assets o f
a trust excep t as a fid u cia ry; and the requirem ents o f this section contem plate that the
national bank will n ot invest crust fun ds in the stock o r obligations o f, o r p ro p e rty acquired
fro m any organization in which officers, directors, o r employees o f the bank have such an
interest as m ig h t a ffect the exercise o f the best jud gm ent o f the m anagem ent o f the bank
in investing trust funds and that the national bank will n ot sell o r tra n sfer trust assets to
any organization in which the officers, directors, o r em ployees o f the bank have such an
interest as m ig h t affect the exercise o f the best judgm ent o f the m anagem ent o f the bank
in selling o r tra n sferrin g trust assets.
14 E xcep t as provided in § 206.10 ( c ) and § 206.17.
vy
S e c s . 2 0 6 .1 3 - 2 0 6 .1 5
REGULATION F
11
SE C T IO N 206.13— D EPO SIT OF SE C U R ITIE S W IT H ST A T E
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 o f Governors o f 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. I f the State authorities refuse to accept
such a deposit, the securities shall be deposited with the Federal R e
serve Bank o f the district in which such national bank is located and
such securil ies shall be held for the protection o f private or court trusts
with like effect as though the securities had been deposited with the
State authorities.
SE C T IO N 206.14— C O M P E N SA T IO N OF B A N K
(a) In general.— I f 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 o f 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.
( b ) Officer or employee of bank as co-fiduciary.— N o national
bank shall, except with the specific approval of its board o f directors,
permit any o f 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 o f any trust accepted or undertaken by it.
SE C T IO N 206.15— IN S O L V E N C Y O R V O L U N T A R Y LIQ U ID AT IO N
OF B A N 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
instructions of the Com ptroller and to the orders of the court or courts
12
REGULATION F
S e c s . 2 0 6 .1 5 - 2 0 6 .1 6
of appropriate jurisdiction, proceed to close such trusts and estates as
can be closed prom ptly 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 prom ptly 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.
SE C TIO N 206.16— S U R R E N D E R OF T R U ST PO W ER S
(a) Procedure.— A ny 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
am ply 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 certifi
cates previously issued to such national bank by the Board under the
provisions of §§ 206.3, 206.5, except that, in case 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 o f such lost or destroyed permit or certificate.
( b ) W ords “ Trust Company” as part o f bank’s title.— Before
issuing the certificate described in paragraph (d ) of this section, the
Board will require any national bank which desires to surrender its
right to exercise trust powers, and which has the words “ trust com
S e c . 2 0 6 .1 6
REGULATION F
13
pany” 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 o f the Comptroller of the
Currency. Such a national bank, therefore, at the time of the adoption
of the resolution referred to in paragraph (a) of this section 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 elimi
nate such words. A dvice that such national bank has taken this step
should be given, in writing, to the Federal Reserve Bank at the time
o f the filing of the documents required by paragraph (a) of this section.
(c) Examination of trust department.— Upon receipt of the docu
ments referred to in paragraph (a) o f this section, the Board will
request the Comptroller o f the Currency, upon the occasion of the next
regular examination of such national bank, to have one of his exami
ners make an investigation of the trust department o f the bank in order
to determine whether the bank, pursuant to authority granted to it
under section 11 (k ) o f the Federal Reserve A ct (40 Stat. 968, as
amended; 12 U.S.C. 248( k ) ) , has actually accepted or undertaken the
exercise o f 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 its duties as fiduciary.
In exceptional cases, the Board may make, or m ay request the
Comptroller o f the Currency to make, a special examination o f the
trust department o f such national bank in order to obtain the inform a
tion referred to in this paragraph.
(d) Certificate of Board o f Governors o f the Federal Reserve
System.— If, upon the basis o f the examination referred to in para
graph ( c ) , o f this section, the Board shall be satisfied that the na
tional bank desiring to surrender its right to exercise trust powers has
never accepted or undertaken to exercise any trust or that its duties
as fiduciary have been com pletely performed and that it has been
discharged or otherwise properly relieved of all of its duties as fidu
ciary, and if, in the case of a national bank the title o f which previously
had included the words “ trust com pany,” the Board shall also be
REGULATION F
14
S e c s . 2 0 6 .1 6 - 2 0 6 .1 7
satisfied, from advice received from the Comptroller o f the Currency,
that the bank has properly eliminated these words from its title, the
Board m ay, in its discretion, issue to such national bank a certificate
certifying that such bank is n o longer authorized to exercise any of
the trust powers conferred upon it by the B oard.15
SE C T IO N 206.17— C O M M O N T R U ST FUNDS
(a)
In general.— (1) Funds received or held by a national bank as
fiduciary m ay 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:
P r o v id e d , h o w e v e r , That funds shall not be invested in a Common
Trust Fund of the type provided for in paragraph (d ) o f this section
unless such investments are specifically authorized by the State
statutes.
(2) As used in this part the term “ Common Trust Fund” means
a fund maintained by a national bank exclusively for the collective
investment and reinvestment, of moneys contributed thereto b y the
bank in its capacity as trustee, executor, administrator, or guardian.lfi
(3) The purpose o f this section is to permit the use of Comm on Trust
Funds, as defined in section 584 of the Internal Revenue Code, 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. N o 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 o f a bank operating a Common Trust Fund shall not
permit any funds of any trust to be invested in a Common Trust Fund
“ Section l l ( k ) o f the Federal R eserve A ct (46 Stat. 815, 12 U .S.C. 2 4 8 ( k ) ) provides that,
upon the issuance o f such a certificate b y the Board, “ such bank (1 ) shall n o lon ger be
subject to the provisions o f this subsection o r the regulations o f the B oard o f Governors o f
the Federal R eserve System made pursuant thereto, (2 ) shall be entilted to have returned to
it a n y securities w hich it m ay have deposited w ith the State authorities f o r th e protection
o f p riva te o r cou rt trusts, and (8 ) shall n ot exercise thereafter any o f the pow ers granted
b y this subsection w ithout first a p p ly in g f o r an d obtaining; a new p erm it to exercise such
pow ers pursuant to the provisions o f this subsection.”
10 A s used in this part the term “ gu ardian” means guardian o r com m ittee o f the estate o f an
infant, incom petent, o r absentee, by w hatever nam e know n in the State in which a particular
national bank is located.
S e c . 2 0 6 .1 7
REGULATION F
15
if it has reason to believe that such trust was not created or is not
being used for bona fide fiduciary purposes. A bank administering a
Common Trust Fund shall not, in soliciting business or otherwise,
publish or make representations which are inconsistent with this para
graph or the other provisions o f this part and, subject to the applicable
requirements of the laws o f any State, shall not advertise or publicize
the earnings realized on any Common Trust Fund or the value o f the
assets thereof.
(4)
Common Trust Funds administered under this section shall be
subject to the following requirements:
(i) Assets in a Common Trust Fund shall be considered as
assets held by the bank as fiduciary;
(ii) 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 accord
ance with the provisions of this section;
(iii) A bank administering a Common Trust Fund shall not
have any interest17 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 subdivision (ii)
of this subparagraph.
( b ) Common Trust Funds for investment of small amounts.—
Subject to all other provisions of this part except paragraphs (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 o f the trust invest
ment committee, in participations in a Common Trust Fund, provided
the total investment of the funds o f any one trust in one or more such
Common Trust Funds shall not exceed $1,200.
(f)
Common Trust Funds for general investment.— Subject to
all other provisions o f this part except paragraphs ( b ) and {d ) of this
section, funds received or held by a bank in its capacity as trustee,
executor, administrator, or guardian m ay be invested in participa
17 A bank shall n ot b e deemed to have an interest in assets in w hich collective investments
are m ade m erely because o f the fa c t that the bank owns in its ow n rig h t other stocks, or
bonds or other obligations o f a person, firm , o r corporation, the stocks o r bonds o r other
obligations o f which are am on g the assets o f a Comm on T ru st Fund.
REGULATION F
16
S e c . 2 0 6 .1 7
tions in a Common Trust Fund administered pursuant to the provi
sions o f this paragraph. All participations in such a Com mon Trust
Fund shall be on the basis o f a proportionate interest in all o f the
assets of the Common Trust Fund.
(1) C o m m o n T ru s t F u n d to b e o p e r a te d u n d e r w r itte n p la n .—
Each Common Trust Fund administered by a bank shall be
established and maintained in accordance with a written plan
(referred to here in as the Plan) approved by a resolution o f the
bank’s board o f directors and approved in writing by competent
legal counsel. The Plan shall provide that the Common Trust
Fund shall be administered in conform ity with the rules and
regulations, prevailing from time to time, of the Board o f G o v
ernors o f the Federal Reserve System pertaining to the collec
tive investment of trust funds by national banks, and shall con
tain full and detailed provisions not inconsistent with the pro
visions o f 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 o f accounts o f the bank with respect to the
Common Trust Fund, the basis and method o f 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 principle office o f the bank for inspection, during all bank
ing hours, to any person having an interest in a trust any funds
of which are invested in a participation in the Com mon Trust
Fund; and upon reasonable request a copy of the Plan shall be
furnished to such person.
(2) T ru s t in v e s tm e n t c o m m it t e e to a p p r o v e p a r tic ip a tio n .—
N o funds o f a trust shall be invested in a particpation in a
Common Trust Fund without the approval o f the trust invest
ment committee. Before premitting any funds o f any trust
to be invested in a participation in a Comm on 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
S e c . 2 0 6 .1 7
REGULATION F
17
lawfully be invested at that time, funds of such trust shall not
be invested in a participation in such Common Trust Fund.
A t 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 instru
ment specifically authorizes investments in Common Trust Funds.
(3) C o m m o n T ru s t F u n d t o b e a u d ite d a n n u a lly . — (i) A bank
administering a Common Trust Fund shall, at least once during
each period o f 12 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 o f 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 o f the date o f the audit, a statement of
purchases, sales and any other investment changes and of in
come and disbursements since the last audit, and appropriate com
ments as to any investments in default as to payment of principal
or interest. The reasonable expenses o f any such audit made by
independent public accountants may be charged to the Common
Trust Fund.
(ii) The bank shall, without charge, send a copy of the latest re
port o f 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.
Except as m ay be required by the applicable laws of any State,
the bank shall not publish or authorize the publication of any
such report or the information contained therein and each copy
furnished to any person as herein provided must bear a state
ment to the effect that the publication o f such copy or the
information contained therein is unauthorized.
(4) V a lu e o f a s s e ts t o b e d e te r m in e d p e r io d ic a lly . — N ot 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 as of the dates which the Plan provides for
REGULATION F
S e c . 2 0 6 .1 7
the valuation of assets. N o participation shall be admitted to
or withdrawn from the Common Trust Fund except (i) on the
basis of such valuation and (ii) as of such a valuation date.
A reasonable period, not to exceed 7 days, following each valua
tion date may be used to make the computations necessary to
determine the value of the Fund and o f the participations therein.
N o participation shall be admitted to or withdrawn from the
Common Trust Fund unless a written request for or notice of
intention of taking such action shall have been entered in
the records of the bank and approved by the trust investment
committee, on or before the valuation date. N o such request
or notice may be canceled or countermanded after the valuation
date.
(5)
M is c e lla n e o u s lim ita tio n s .— (i) N o funds of any trust shall
be invested in a participation in a Common Trust Fund if such
investment would result in such trust having invested in the
aggregate in the Common Trust Fund an amount in excess of
10 per cent of the value of the assets of the Common Trust Fund
at the time of investment, as determined by the trust invest
ment committee, or the sum of $100,000, whichever is less. If
the bank administers more than one Comm on Trust Fund under
this subsection, no investment shall be made which would cause
any one trust to have invested in the aggregate in all such
Common Trust Funds an amount in excess of the sum of
$100,000; and, if the bank administers Funds under paragraphs
(c) and ( d ) o f this section, no investment shall be made which
would cause any one trust to have invested in the aggregate
in all such Funds an amount in excess of the sum o f $100,000.
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 o f the income or principal or both of each
trust is payable or applicable to the use o f the same person or
persons, such trusts shall be considered as one.
(ii)
N o 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 o f the value of
the Common Trust Fund, as determined by the trust investment
committee, provided that this limitation shall not apply to invest
ments in obligations o f the United States or for the payment
S ec.
206.17
REGULATION F
19
of the principal and interest o f which the faith and credit o f the
United States shall be pledged.
(iii) N o investment for a Common Trust Fund shall be made in
any one class of shares o f stock of any one corporation which
would cause the total number o f such shares held by the Common
Trust Fund to exceed 5 per cent of the number of such shares out
standing. I f the bank administers more than one Common Trust
Fund no investment shall be made which would cause the aggre
gate investment for all such Common Trust Funds in shares o f
stock of any one corporation to exceed such limitation.
(iv) Any bank administering a Common Trust Fund shall
have the responsibility o f maintaining in cash and readily market
able securities 18 such part o f 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 admis
sions 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 committee deter
mines that, after effecting the admissions and withdrawals which
are to be made pursuant to notice given as required in subpara
graph (4) of this paragraph, less than 40 per cent o f the value of
the remaining assets o f the Common Trust Fund would be com
posed o f cash and readily marketable securities, no admissions to
or withdrawals from the Common Trust Fund shall be permitted
as o f the valuation date upon which such determination is made,
except that ratable distribution upon all participations is not
prohibited.
(6)
D is t r ib u tio n u p o n w ith d ra w a l o f p a r tic ip a tio n .— When par
ticipations are withdrawn from a Common Trust Fund distribu
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 C om
mon Trust Fund would be unlawful for one or more participating
trusts if funds o f such trusts were being invested at that tim e; and
18
A readily marketable security within the m eaning o f this section m eans a security which
is a d irect obligation o f the U nited States o r w hich is the su b ject o f frequent dealings in ready
m arkets with such frequent quotations o f p rice as to m ake (a ) the p rice easily and definitely
20
REGULATION F
S e c . 2 0 6 .1 7
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 subparagraph (7) of this paragraph.
(7) S e g r e g a tio n o f in v e s tm e n ts . — I f for any reason an invest
ment is withdrawn in kind from a Comm on 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 C om
mon Trust Fund at the time of withdrawal.
(8) M a n a g e m e n t o f C o m m o n T ru s t F u n d an d fe e s . — A national
bank administering a Common Trust Fund shall have the exclusive
management thereof and shall not charge a fee for the manage
ment o f the Common Trust Fund, or receive, either from the
Common Trust Fund or from any trusts the funds o f which are
invested in participations therein, any additional fees, commis
sions, or compensations o f any kind by reason of such participa
tion. The bank shall not pay a fee, commission, or compensation
out o f the Common Trust Fund for management. Nothing in this
subparagraph shall be construed as prohibiting a bank from
reimbursing itself out o f a Common Trust Fund for such reason
able expenses incurred by it in the administration thereof as
would have been chargeable to the respective participating trusts
if incurred in the separate administration o f such participating
trusts.
(9) E f f e c t o f m is ta k e s . — N o 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
part if prom ptly after the discovery of the mistake the bank
takes whatever action may be practicable in the circumstances to
remedy the mistake.
(d)
Common Trust Funds composed principally of mortgages
(Mortgage Investment F un ds).— Subject to all other provisions of
this part except paragraphs (£>) and (c) o f this section,19 funds
received or held by a bank in its capacity as trustee, executor,
administrator, or guardian m ay be invested in participations in a
Common Trust Fund administered pursuant to the provisions o f this
paragraph (referred to in this paragraph as a “ M ortgage Investment
19 N ote, however, that certain provisions o f paragraph ( e ) o f this section are incorporated
in this paragraph ( d) by reference.
S e c . 2 0 6 .1 7
REGULATION F
21
Fund” ). A ll admissions and withdrawals of participations in a M ort
gage Investment Fund shall be made on the basis o f the actual amount
invested by each participant, and, except in final liquidation o f a
M ortgage Investment Fund, participants therein shall not have an
interest in reserves accumulated or enhancement in the value o f assets,
except such as may be distributable as income.
(1) M o r t g a g e I n v e s t m e n t F u n d to b e o p e r a te d u n d e r w r itte n
p la n . — Each M ortgage Investment Fund shall be subject to the
provisions of paragraph ( c ) ( 1 ) o f this section.
(2) T ru s t in v e s tm e n t c o m m it t e e to a p p r o v e p a r tic ip a tio n .—
(i) N o funds o f a trust shall be invested in a participation in a
M ortgage 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 M ortgage Investment
Fund, the trust investment committee shall review the assets
comprising the M ortgage Investment Fund; and, if it finds that
the condition of the M ortgage Investment Fund is such that the
funds of such trust might not lawfully be invested in a participa
tion therein at that time, or that such investment would be
contrary to the provisions o f this paragraph, funds o f such trust
shall not be so invested.
(ii)
A t the time o f making the first investment o f funds of a
trust in any M ortgage Investment Fund, the bank shall send a
notice of such investments 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 Mortgage In
vestment Funds.
(3) M o r t g a g e I n v e s t m e n t F u n d t o b e a u d ite d a n n u a lly . — Each
M ortgage Investment Fund shall be subject to the provisions of
paragraph (c) (3) o f this section.
(4) V a lu e o f a s s e ts to b e d e te r m in e d p e r io d ic a lly . — (i) N ot
less frequently than once during each period o f three months the
trust investment committee o f a bank administering a Mortgage
Investment Fund shall determine the value o f the assets in the
M ortgage Investment Fund as o f the dates which the Plan pro
vides for the valuation o f assets. N o participation shall be
admitted to or withdrawn from the M ortgage Investment Fund
except as of such a valuation date. A reasonable period, not to
exceed 7 days, following each valuation date m ay be used to
REGULATION F
S ec.
206.17
make the computations necessary to determine the value o f the
Fund and of the participations therein. N o participation shall
be admitted to or withdrawn from the M ortgage Investment
Fund unless, on the basis of such valuation, the value of the
assets of the M ortgage Investment Fund, exclusive of accrued
income, is at least equal to the amount of the outstanding par
ticipations. N c participation shall be admitted to or withdrawn
from the M ortgage Investment Fund unless a written request
for or notice of intention o f taking such action shall have been
entered in the records o f the bank and approved by the trust
investment committee, on or before the valuation date. N o such
request or notice m ay be canceled or countermanded after the
valuation date.
(ii) The real estate securing each obligation contained in a
M ortgage Investment Fund and any real estate contained in the
M ortgage Investment Fund shall be appraised at least once every
three years by two persons, one of whom shall not have partici
pated in the last preceding appraisal o f the particular property for
the purposes of the M ortgage Investment Fund. Such persons shall
be appointed by the bank’s board o f 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
o f appraisal, which shall be filed and preserved in the bank’s
records.
(iii) The trust investment committee shall require more fre
quent appraisals o f all properties or any particular property if
such action is deemed b y the committee to be necessary to enable
it properly to discharge the duties imposed upon it b y this para
graph.
(5)
M is c e lla n e o u s lim ita tio n s. — (i) N o funds of any trust shall
be invested in a participation in a M ortgage Investment Fund
if such investment would result in such trust having invested
in the aggregate in the M ortgage Investment Fund an amount
in excess o f the sum o f $1,200 or 2 per cent of the amount of the
outstanding participations in the M ortgage Investment Fund,
whichever is greater at the time o f investment, or in any event
in excess o f the sum o f $10,000. I f the bank administers more
than one M ortgage Investment Fund, no investment shall be
made which would cause any one trust to have invested in the
S ec. 206.17
REGULATION F
23
aggregate in all such M ortgage Investment Funds an amount in
excess of the sum of $10,000; and, if the bank administers Funds
under both paragraphs (c) and (d) o f this section, no invest
ment shall be made which would cause any one trust to have
invested in the aggregate in all such Funds an amount in excess
o f the sum o f $50,000. 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 o f the income or
principal or both of each trust is payable or applicable to the
use of the same person or persons, such trust shall be considered
as one.
(ii) N o investment for a Mortgage Investment Fund shall be
made in obligations o f 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 o f the outstanding participations in the M ort
gage Investment Fund, provided that this limitation shall not ap
ply to investments in obligations o f the United States or for the
paym ent of the principal and interest o f which the faith and credit
o f the United States shall be pledged.
(iii) The unpaid balance of any obligation secured by real estate
in which the funds o f a M ortgage Investment Fund are invested
shall not exceed $10,000 on the date o f 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 o f such obligation shall not exceed 5 per cent
o f the amount o f such outstanding participations or $50,000, which
ever amount is less.
(iv ) Any bank administering a M ortgage Investment Fund
shall have the responsibility of maintaining in cash such part of
the assets o f the M ortgage Investment Fund as shall be deemed by
the banks to be necessary to provide adequately for the needs of
participating trusts and to prevent inequities between such trusts.
N o investment of the moneys o f a M ortgage Investment Fund
shall be made if following such investment the cash balance, ex
clusive o f collected income on hand, in the M ortgage Investment
Fund would be less than an amount equal to 5 per cent of the total
amount of all outstanding participations in the M ortgage Invest
ment Fund. Unless upon computing the amount o f the admissions
and withdrawals which are to be made as of any valuation date
pursuant to notice given as required in subparagraph (4) o f this
REGULATION F
S ec. 206.17
paragraph, the trust investment committee determines that there
will be sufficient cash in the M ortgage Investment Fund to permit
all such withdrawals, no admissions to or withdrawals from the
M ortgage Investment Fund shall be permitted as o f such valuation
date.
(v )
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 subparagraph (4) o f this paragraph, the amount o f investments
of a M ortgage Investment Fund represented b y assets in which
moneys of the M ortgage Investment Fund could not then be
invested under the provisions of subparagraph (8) o f this para
graph will not exceed 10 per cent of the amount of the outstanding
participations in the M ortgage Investment Fund, no admissions
to or withdrawals from the M ortgage Investment Fund shall be
permitted as o f such valuation date.
(6)
R e s e r v e a c c o u n t a n d d is tr ib u tio n o f i n c o m e .— (i) In each
M ortgage Investment Fund the bank shall establish and main
tain a reserve account as part o f 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 M ortgage Investment
Fund, other than income, shall be credited to such reserve
account.
(ii)
A t least semiannually a bank administering a M ortgage In
vestment Fund shall determine the net income of the Mortgage
Investment Fund during the period since the last determination
thereof. A t the close o f each earning period, if the total amount
contained in such reserve account is less than 10 per cent of the
total amount o f all outstanding participations in the M ortgage In
vestment Fund, the bank shall transfer to the reserve account, out
of the net income o f the M ortgage 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 o f the amount
of the gross income of the M ortgage Investment Fund for such
year or more than 1 per cent of the average o f the total
amounts of all outstanding participations in the M ortgage Invest
ment Fund at the close of each earning period. N o such transfers
to the reserve account shall be made which will cause the amount
contained therein to exceed 10 per cent o f the amount of all out
standing participations.
REGULATION F
Sec. 206.17
25
(iii)
The balance o f 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 par
ticipations in the M ortgage Investment Fund in proportion to the
amounts of their participations and the period of time owned
since the previous determination o f net income.
(7) W ith d r a w a l o f p a r tic ip a tio n in a M o r t g a g e I n v e s t m e n t
F u n d . — (i) Upon the withdrawal o f a participation of any trust
prior to termination and final liquidation of a M ortgage Invest
ment 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 o f such payment, but such
income shall not be paid until the amount thereof shall have
been determined at the close o f the current earning period.
(ii) Upon the termination and final liquidation o f a Mortgage
Investment Fund, all assets of the M ortgage Investment Fund
shall be distributed among the owners of the participations at
that time in proportion to the amounts thereof.
(8) I n v e s t m e n t o f m o n e y s o f M o r t g a g e I n v e s t m e n t F u n d s .—
The moneys of a M ortgage Investment Fund shall be invested
in:
(i) Obligations secured by real estate which, at the date
o f the investment, are legal for investment o f trust funds
under the laws o f the State in which the bank is located
and are insured by the Federal Housing Administrator, hav
ing been insured prior to the first day o f July 1939, pursuant
to the provisions o f Title II of the National Housing Act,
approved the 27th day of June 1934, as amended (48 Stat.
1247 et seq.; 12 U.S.C. 1707-1715c), or having been so insured
thereafter, with like force and effect, pursuant to any revision
or extension o f the provisions of the said A ct, or
(ii) Obligations secured by real estate which, at the date
of the investment, are legal for investment of trust funds
under the laws o f 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 con
tained in the third sentence o f section 24 of the Federal
Reserve A ct (38 Stat. 273, as amended; 12 U.S.C. 371), or
(iii) (a) Obligations sccured by real estate which, at the
date of the investment, are legal for investment o f trust funds
under the laws of the State in which the bank is located,
REGULATION F
26
S ecs.
206.17-206.18
which are payable within 20 years, and which either provide
for semiannual payments reducing the principal thereof an
nually in an amount equal to at least 5 per cent o f the
amount of the principal on the date of investment, or pro
vide for the amortization of the total unpaid principal amount
o f such mortgage on the date of investment by equal monthly
payments during the term o f 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
o f a renewal or extension o f any such obligation held by a
M ortgage Investment Fund, the date upon which the M ort
gage Investment Fund originally acquired the obligation shall
be considered the date of investment.
(6)
I f in the judgment o f the trust investment committee
such obligations are not available for investment o f moneys
o f a M ortgage Investment Fund, such moneys m ay be
invested tem porarily in obligations o f 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 o f the
United States or of such State shall be pledged, and which
are legal for investment o f trust funds under the laws o f the
State in which the bank is located. A s soon as obligations
secured by real estate in which the moneys of the M ortgage
Investment Fund m ay be invested are available, such securi
ties shall be disposed o f and the proceeds invested in such
obligations if this can be accomplished without disadvantage
to the M ortgage Investment Fund.
(9) M a n a g e m e n t o f M o r t g a g e I n v e s t m e n t F u n d a n d f e e s .—
Each Mortgage Investment Fund shall be subject to the provisions
o f paragraph (c) (8) o f this section.
(10) E f f e c t o f m is ta k e s .— Each M ortgage Investment Fund
shall be subject to the provisions o f paragraph (c) (9) o f this
section.
SE C T IO N 206.18— B O A R D FO R M S
All forms referred to in this part and all such forms as amended
from time to time shall be a part o f this part.
REGULATION F
27
APPENDIX
S T A T U T O R Y PROVISIONS
Section 11 (k ) o f the Federal Reserve A ct (12 U.S.C. 248 ( k ) ) , pro
vides as follows:
The Board of Governors of the Federal Reserve System shall be
authorized and empowered:
(k ) T o grant by special permit to national banks applying
therefor, when not in contravention o f 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 o f 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 exer
cise o f 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 o f 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 o f the bank and shall keep a
separate set o f books and records showing in proper detail all
transactions engaged in under authority o f this subsection. The
State banking authorities may have access to reports o f 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 A ct shall be construed as authorizing the State banking
authorities to examine the books, records, and assets o f such bank.
N o national bank shall receive in its trust department deposits
o f 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 in
vestment 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
REGULATION F
securities approved by the Board of Governors of the Federal
Reserve System.
In the event o f the failure o f 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 o f a State require corporations acting in a
fiduciary capacity, to deposit securities with the State authorities
for the protection o f 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 o f private or court
trusts, as provided by the State law.
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 o f the State.
In any case in which the laws o f 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. A ny officer, director,
or employee making such loan, or to whom such loan is made,
m ay be fined not more than $5,000, or imprisoned not more than
five years, or may be both fined and imprisoned, in the discretion
o f 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 m ay take into consideration the
amount o f capital and surplus of the applying bank, whether or
not such capital and surplus is sufficient under the circumstances
of the case, the needs o f the com munity to be served, and any
other facts and circumstances that seem to it proper, and m ay
grant or refuse the application accordingly: P r o v id e d , That no
permit shall be issued to any national banking association having
a capital and surplus less than the capital and surplus required
REGULATION F
29
by State law of State banks, trust companies, and corporations
exercising such powers.
A ny 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 com plying with the require
ments of this subsection, or to have returned to it any securities
which it m ay 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 o f a resolution of its board of directors sig
nifying such desire. Upon receipt o f such a resolution, the Board
o f Governors o f 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 o f lunatics or other fiduciary, under court, private, or other
appointments previously accepted under authority o f this sub
section, m ay, in its discretion, issue to such bank a certificate cer
tifying 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 o f the Federal Reserve Sys
tem, such bank (1) shall no longer be subject to the provisions of
this subsection or the regulations o f the Board o f Governors o f the
Federal Reserve System made pursuant thereto, (2) shall be
entitled to have returned to it any securities which it m ay have
deposited with the State authorities for the protection of private
or court trusts, and (3) shall not exercise thereafter any o f the
powers granted by this subsection without first applying for and
obtaining a new permit to exercise such powers pursuant to the
provisions o f this subsection. The Board of Governors of the
Federal Reserve System is authorized and empowered to promul
gate such regulations as it may deem necessary to enforce com pli
ance with the provisions of this subsection and the proper exercise
of the powers granted therein.
Sections 1, 2, and 3 o f the A ct o f Congress approved N ovem ber 7,
1918, as amended (12 U.S.C. 215, 215a, and 215b), provide in part as
iollows:
Sec.
1. That (a) any national banking association or any bank
incorporated under the laws of any State m ay, with the approval
of the Comptroller, be consolidated with one or more national
REGULATION F
banking associations located in the same State under the charter
o f a national banking association. . . .
*
*
*
*
*
*
*
(e)
The corporate existence o f each o f the consolidating banks
or banking associations participating in such consolidation shall
be merged into and continued in the consolidated national banking
association and such consolidated national banking association
shall be deemed to be the same corporation as each bank or bank
ing association participating in the consolidation. All rights, fran
chises, and interests o f the individual consolidating banks or
banking associations in and to every type of property (real, per
sonal, and mixed) and choses in action shall be transferred to and
vested in the consolidated national banking association b y virtue
o f such consolidation without any deed or other transfer. The
consolidated national banking association, upon the consolidation
and without any order or other action on the part of any court
or otherwise, shall hold and enjoy all rights o f property, fran
chises, 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, and committee o f estates o f 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 one of the consolidating banks or banking asso
ciations at the time o f consolidation, subject to the conditions
hereinafter provided.
(/) Where any consolidating bank or banking association, at the
time o f the consolidation, was acting under appointment of any
court as trustee, executor, administrator, registrar o f stocks and
bonds, guardian of estates, assignee, receiver, or committee of
estates of lunatics, or in any other fiduciary capacity, the consoli
dated 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 consolidating bank or banking asso
ciation prior to the consolidation. N othing contained in this sec
tion shall be considered to impair in any manner the right of any
court to remove the 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 consolidated national banking association be re
REGULATION F
31
moved solely because of the fact that it is a national bank as
sociation.
* * * * * * *
Sec. 2. (a) One or more national banking associations or one
or more State banks, with the approval o f the Comptroller, under
an agreement not inconsistent with this A ct, m ay merge into a
national banking association located within the same State, under
the charter o f the receiving association.
*
*
*
*
*
*
*
(e) The corporate existence of each of the merging banks or
banking associations participating in such merger shall be merged
into and continued in the receiving association and such receiving
association shall be deemed to be the same corporation as each
bank or banking association participating in the merger. All
rights, franchises, and interests o f the individual merging banks or
banking associations in and to every type of property (real, per
sonal, and mixed) and choses in action shall be transferred to and
vested in the receiving association by virtue of such merger with
out any deed or other transfer. The receiving association, upon
the merger and without any order or other action on the part of
any court or otherwise, shall hold and enjoy all rights of property,
franchises, and interests, including appointments, designations,
and nominations, and all other rights and interests as trustee, ex
ecutor, administrator, registrar of stocks and bonds, guardian of
estates, assignee, receiver, and 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 one of the merging banks or banking associa
tions at the time o f the merger, subject to the conditions herein
after provided.
(f) Where any merging bank or banking association, at the
time of the merger, was acting under appointment o f any court as
trustee, executor, administrator, registrar of stocks and bonds,
guardian of estates, assignee, receiver, or committee o f estates of
lunatics, or in any other fiduciary capacity, the receiving associa
tion shall be subject to removal by a court o f competent jurisdic
tion in the same manner and to the same extent as was such
merging bank or banking association prior to the merger. Nothing
contained in this section shall be considered to impair in any
manner the right o f any court to remove the receiving association
and to appoint in lieu thereof a substitute trustee, executor, or
REGULATION F
32
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 receiving association be removed solely
because of the fact that it is a national banking association.
*
Sec.
*
*
*
*
*
*
3. A s used in this A ct, the term—
(1) “ State bank” means any bank, banking association, trust
com pany, savings bank (other than a mutual savings b an k ), or
other banking institution which is engaged in the business of
receiving deposits and which is incorporated under the laws of
any State, or which is operating under the Code of Law for the
D istrict of Columbia (except a national banking association
located in the D istrict of C olu m b ia );
(2) “ State” means the several States, the several Territories,
Puerto R ico, the Virgin Islands, and the D istrict of C olum bia;
(3) “ Com ptroller” means the Comptroller o f the Currency;
and
(4) “ Receiving association” means the national banking asso
ciation into which one or more national banking associations or
one or more State banks, located within the same State, merge.
The A ct o f Congress approved M ay 1, 1886 (12 U.S.C. 30, 31, and
3 2 ), provides in part as follows:
S e c . 2. A ny national banking association, with the approval of
the Comptroller o f the Currency, may change its name or change
the location of the main office of such association within the limits
of the city, town, or village in which it is situated. Any national
banking association, with the approval of the Comptroller o f the
Currency, may change the location of the main office of such asso
ciation to any other location outside the limits o f the city, town,
or village in which it is located, but not more than thirty miles
distant, by the vote of shareholders owning two-thirds o f the stock
o f such association. A duly authenticated notice of the vote and of
the new name or location selected shall be sent to the Comptroller
of the C urrency; but no change o f name or location shall be valid
until the Comptroller shall have issued his certificate of approval
of the same. (As amended September 8, 1959.)
S e c . 3. 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.
REGULATION F
33
S ec. 4. Nothing contained in sections 30 and 31 of this title 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 o f the subject matter of this regula
tion.
SEC. 581.
D E F IN IT IO N OF B A N K .
For purposes of sections 582 and 584, the term “ bank” means a
bank or trust com pany incorporated and doing business under the
laws of the United States (including laws relating to the District
o f C olum bia), of any State, or o f any Territory, a substantial part
o f 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 A ct (38 Stat. 262; 12 U.S.C. 2 4 8 (k )), and which
is subject by law to supervision and examination by State, T er
ritorial, or Federal authority having supervision over banking
institutions. Such term also means a domestic building and loan
association.
SEC. 584.
C O M M O N T R U ST FUNDS.
(a) D e fin itio n s . — For purposes of this subtitle, the term “ com
mon trust fund” means a fund maintained by a bank—
(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 conform ity with the rules and regulations, prevailing
from time to time, of the Board o f Governors of the Federal
Reserve System pertaining to the collective investment of trust
funds by national banks.
(b ) T a x a tio n o f C o m m o n T ru s t F u n d s. — A common trust fund
shall not be subject to taxation under this chapter and for pur
poses of this chapter shall not be considered a corporation.
(c) I n c o m e o f P a r tic ip a n ts in F u n d .—
(1)
In clu sio n s in T a x a b le I n c o m e . — Each participant in the
common trust fund in computing its taxable income shall in
clude, whether or not distributed and whether or not dis
tributable—
REGULATION F
(A ) as part of its gains and losses from sales or exchanges
of capital assets held for not more than 6 months, its pro
portionate share of the gains and losses o f the common trust
fund from sales or exchanges of capital assets held for not
more than 6 months;
(B ) as part of its gains and losses from sales or exchanges
of capital assets held for more than 6 months, its proportion
ate share of the gains and losses of the common trust fund
from sales or exchanges of capital assets held for more than
6 months;
(C ) its proportionate share o f the ordinary taxable income
or the ordinary net loss of the common trust fund, com
puted as provided in subsection (d ).
(2)
D iv id e n d s a n d P a r t ia lly T a x E x e m p t I n t e r e s t . — The pro
portionate share of each participant in the amount of dividends
to which section 34 or section 116 applies, and in the amount
of partially tax exempt interest on obligations described in
section 35 or section 242, received by the common trust fund
shall be considered for purposes o f such sections as having
been received by such participant. I f the common trust fund
elects under section 171 (relating to amortizable bond premium)
to amortize the premium on such obligations, for purposes of
the preceding sentence the proportionate share o f the partici
pant of such interest received by the common trust fund shall
be his proportionate share of such interest (determined with
out regard to this sentence) reduced by so much of the deduc
tion under section 171 as is attributable to such share.
(d)
C o m p u ta tio n o f C o m m o n T ru st F u n d I n c o m e . — The tax
able income of a 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 gains and losses from sales
or exchanges of capital assets;
(2) after excluding all items o f gain and loss from sales or
exchanges o f capital assets, there shall be computed—
(A )
excess
(B )
of the
an ordinary taxable income which shall consist o f the
of the gross income over deductions; or
an ordinary net loss which shall consist of the excess
deductions over the gross income;
(3) the deduction provided by section 170( relating to char-
REGULATION F
35
itable, etc., contributions and gifts) shall not be allowed; and
(4) the standard deduction provided in section 141 shall not
be allowed.
(e) A d m iss io n a n d
ized by the common
of a participant. The
a participant shall be
by the participant.
W ith d ra w a l. — N o gain or loss shall be real
trust fund by the admission or withdrawal
withdrawal of any participating interest by
treated as a sale or exchange o f such interest
(f) D iffe r e n t T a x a b le Y ea r s o f C o m m o n T ru st F u n d an d P a r
ticip a n t. — I f the taxable year of the common trust fund is d if
ferent from that of a participant, the inclusions with respect to
the taxable income of the common trust fund, in computing the
taxable income of the participant for its taxable year, shall be
based upon the taxable income o f the common trust fund for any
taxable year of the common trust fund ending within or with the
taxable year of the participant.
(g) N e t O p er a tin g L o s s D e d u c t io n . — The benefit o f the deduc
tion for net operating losses provided by section 172 shall not be
allowed to a common trust fund, but shall be allowed to the par
ticipants in the common trust fund under regulations prescribed
by the Secretary or his delegate.
SEC. 6032.
R E T U R N S OF B A N K S W IT H R ESPEC T TO C O M M O N
T R U ST FUNDS.
Every bank (as defined in section 581) maintaining a common
trust fund shall make a return for each taxable year, stating
specifically, with respect to such fund, the items of gross income
and the deductions allowed by subtitle A , and shall include in the
return the names and addresses of the participants who would be
entitled to share in the taxable income if distributed and the
amount of the proportionate share of each participant. The re
turn shall be executed in the same manner as a return made by a
corporation pursuant to the requirements of sections 6012 and
6062.
A STATEMENT OF PRINCIPLES OF TRU ST 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 Asso
ciation on April 11, 1933. (Article V was amended June 8, 1956.)
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REGULATION F
FOREWORD
This Statement of Principles has been formulated in order that the
fundamental principles o f institutions engaged in trust business m ay 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—
namely, fidelity. Policies predicated upon this principle have for their
objectives its expression in terms o f 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 o f the
United States makes the principles o f such institutions a matter of
public interest.
A R T IC L E I
D E F IN IT IO N OF T E R M S
Section 1. Trust Institutions.— Trust institutions are corporations
engaged in trust business under authority of law. T hey 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 o f set
tling 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 insti
tution should limit the functions o f its trust department to such
services.
A R T IC L E II
A C C E P T A N C E OF T R U ST BUSINESS
A trust institution is under no obligation, either moral or legal, to
accept all business that is offered.
Section 1. Personal Trust Business.— W ith respect to the accept
ance of personal trust business the tw o determining factors are these:
Is trust service needed, and can the service be rendered properly? In
REGULATION F
37
personal trusts and agencies, the relationship is private, and the trust
institution is responsible to those only who have or m ay have a
financial interest in the account.
Section 2 . Corporate Trust Business.— In considering the accept
ance of a corporate trust or agency the trust institution should be
satisfied that the com pany concerned is in good standing and that the
enterprise is of a proper nature.
A R T IC L E III
A D M IN IS T R A T IO N OF T R U ST 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 interest of ulti
mate beneficiaries. It should be the policy o f trust institutions that
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 o f the trust department.
Section 2 . Confidential Relationships.— Personal trust service is
of a confidential nature and the confidences reposed in a trust depart
ment 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 o f 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
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 per
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REGULATION F
sonal 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 o f the security-holders.
A R T IC L E IV
O P E R A T IO N OF T R U ST D E P A R T M E N T S
Section 1. Separation o f Trust Properties.— The properties of
each trust should be kept separate from those o f all other trusts and
separate also from the properties of the trust institution itself.
Section 2. Investment o f Trust Funds.— The investment function
of a trustee is care and management o f 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 o f an investment committee composed of
capable and experienced officers or directors o f the institution.
When the trust instrument definitely states the investment powers
of the trustee, the terms o f 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
of the safety o f 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 o f 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
REGULATION F
39
trusts. A ccordingly, 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 SA T IO N FOR T R U ST SE R VIC E
Section 1.— A trust institution is entitled to reasonable compensa
tion for its services. Compensation should be determined on the basis of
the cost o f the service rendered and the responsibilities assumed. M ini
mum fees for trust services should be applied uniform ly and im
partially to all its customers alike. (As amended June 8, 1956.)
A R T IC L E V I
P R O M O T IO N A L EFFO 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
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 mat
ter 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 en
ter 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
40
REGULATION F
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.
A R T IC L E V II
RELA TIO N SH IP S
Section 1. W ith Public.— Although a trust department is a dis
tinctly 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 . W ith Bar.— A ttorneys-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 o f harmonious
relations between trust institutions and members o f 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 o f law.
Section 3 . W ith Life Underwriters.— Life underwriters also con
stitute a group having a com munity of interest with trust institutions
in the common purpose of public service. Cooperation between trust
institutions and life underwriters is productive o f the best mutual
service to the public. It is a principle o f this cooperation that trust
institutions should not engage in the business of selling life insurance.
@FedFRASER