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COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS

W04-2186

WASH., D C. 20220

F o r R e le a s e
F e b ru a ry 5, 19 74, 11:30 AM P a c if ic T im e
ßDn -Wvt ^ dk * * Hpw TfcvrtaQ

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R E M A R K S O F nJA M E S E . gM IT H
C O M PT R O L L E R O F TH E CURREN CY
B E F O R E T H E A M E R IC A N B A N K E R S A SSO C IA TIO N
N A TIO N A L T R U S T C O N F E R E N C E
A T T H E SAN F R A N C ISC O H IL T O N H O T E L
F E B R U A R Y 5, 1974

T h e lead in g p u blic p o lic y is s u e r e la tin g to th e o p e r a tio n of t r u s t
d e p artm e n ts by c o m m e r c ia l b an k s c o n c e r n s th a t co n ju n c tio n i t s e l f . V o c a l
c r it ic s of ban k t r u s t o p e ra tio n s h a v e g e n e r a te d a r is in g ch o ru s of dem and s
that t r u s t a c tiv ity b e d iv e s te d c o m p le te ly f r o m th e c o m m e r c ia l bankin g
in d u stry . T h is is n o t a new c h a lle n g e , c e r t a in ly , bu t it m u s t b e v iew ed by
us fr o m the- new p e r s p e c tiv e s th a t h a v e b e e n c r e a te d by a p u b lic w h ich h a s
b eco m e m u ch m o r e a n a ly t ic a l in it s a p p ro a ch to pur in s titu tio n s . I t is no
longer an a c a d e m ic e x e r c i s e j it is a s e r io u s t h r e a t . T h e r e f o r e , w e m u st
face th is is s u e s q u a r e ly .
W e b e g in w ith th e o b s e r v a tio n th a t th e r e la tio n s h ip b e tw e e n b a n k s and
th e ir t r u s t d e p a rtm e n ts is one w h ich h a s en d u red fo r m an y g e n e r a tio n s . I t
should be s e v e r e d only i f th e r e d ev elo p d e m o n s tr a te d a b u s e s w h ich ca n t
o th e rw ise b e d e a lt w ith . T h e d is a d v a n ta g e s to th e p u b lic w h ich w ould r e s u lt
fro m s e p a r a tio n a r e m a p y . L e t m e to u ch upon so m e of th e s e .
T h e f i r s t r e la t e s to th e n u m b e r of t r u s t s e r v i c e s a v a ila b le to the p u b lic .
At th is tim e , c o m m e r c ia l b an k s r e p r e s e n t th e m o s t im p o r ta n t c o r p o r a te
fid u c ia ry . T h e r e a r e some 3 8 0 0 b an k s w ith t r u s t p o w e rs . W^ere p u b lic p o licy
to r e q u ir e c o m m e r c ia l ban k s to le a v e th e t r u s t f ie ld , th e n u m b e r of c o r p o r a te
fid u c ia r ie s w ould d e c lin e d r a s t ic a lly a s th is p o licy w a s e ffe c tu a te d . T h e t r u s t
b u sin e ss w ould b e han d led e n tir e ly by in d iv id u a ls and by n o n -b a n k c o r p o r a te
f id u c ia r ie s .
T h e in h e r e n t p r o b le m s a s s o c ia t e d w ith in d iv id u a ls a ctin g in a fid u c ia r y
ca p a c ity a r e w e ll know n. No in d iv id u a l e n jo y s th e p e rp e tu a l lif e of a c o r p o r a ­
tion. No in d iv id u a l ca n p o s s ib ly p o s s e s s th e c o m p r e h e n s iv e in v e s tin g and
m an ag em en t s k ills a v a ila b le in a la r g e t r u s t d e p a rtm e n t. T h e y a r e not s u b je c t




-

2-

to any c o u n te r p a r t of ban k t r u s t d e p a rtm e n t reg u latio n » As to n o n -b a n k
co rp o rate f id u c ia r ie s , i t a p p e a r s not u n lik e ly th a t, o v e r tim e , w ith the
d isap p earan ce of ban k s fr o m th e fid u c ia r y a r e a , th e to ta l n u m b e r of
co rp o ra te fid u c ia r ie s o ffe rin g t r u s t s e r v ic e s would d e c lin e su b sta n tia lly »
For i t is u n r e a lis t ic to a s s u m e th a t one in d ep en d en t t r u s t co m p an y w ould
rep lace e a c h b an k d e p a rtm e n t w h ich is d iv ested » An a g g r e g a tio n o r c o n ­
g lo m eratio n of s e v e r a l su ch u n its is m u ch m o r e ap t to r e s u lt , b e c a u s e of
cap ital r e q u ir e m e n ts and th e e c o n o m ie s of s c a le th a t a r e in h e r e n t in th e
in v estm en t fu n ctio n of t r u s t d e p a rtm e n ts» T h u s w e s e e th a t th e p u b lic would
suffer a d e c lin e in th e n u m b e r of a lte r n a tiv e s o u r c e s of t r u s t s e r v i c e s , a
probable d e c lin e in th e a v e r a g e q u a lity of s e r v ic e s a v a ila b le , and a p ro b a b le
decline in c o m p e titio n in th e o ffe r in g of t r u s t s e r v ic e s »
T h e se co n d m a jo r d isa d v a n ta g e fo r the p u b lic in th e s e p a r a tio n of t r u s t
operations fr o m c o m m e r c ia l b a n k s r e la t e s to c a p ita liz a tio n » C u r r e n tly ,
total bank c a p ita l of about $ 5 0 b illio n is a v a ila b le a s a p r o te c tio n o r cu sh io n
for tr u s t b e n e f ic ia r ie s » N o n -b an k c o r p o r a te f id u c ia r ie s h av e a m u ch s m a lle r
ratio of c a p ita l to th e to ta l t r u s t a s s e t s m anaged» H ow ever a sp in o ff of t r u s t
operations fr o m c o m m e r c ia l b a n k s w e r e to b e h an d led , th e r e d o es n o t a p p e a r
to be a c o n c e iv a b le w ay , le t a lo n e a p r a c t ic a l w ay , of m a in ta in in g a c a p ita l
cushion o f th e s a m e m ag n itu d e now en jo y ed by t r u s t acco u n ts»
T h e th ird d isa d v a n ta g e to the p u blic is a n o n -q u a n tifia b le one» ^ It r e la t e s
to the u tility , th a t i s , th e d e g r e e of s a t is f a c t io n , enjoyed by an in d iv id u a l e s t a b ­
lishing a t r u s t w hen h e is a b le , i f h e w is h e s , to u tiliz e th e s e r v i c e s of one o f
many of w e ll e s ta b lis h e d c o m m e r c ia l ban k s th a t e n jo y a re p u ta tio n fo r s t a b ilit y ,
continuity, and f in a n c ia l e x p e r t is e . T o r e m o v e th e option of e s ta b lis h in g a
tru st under th e a e g is of one of th e s e in s titu tio n s would a p p e a r to c r e a t e a d i s ­
utility th a t m an y c r i t i c s of b an k t r u s t o p e ra tio n s f a i l c o m p le te ly to ta k e in to
c o n sid e ra tio n .
On th e o th e r s id e of th e c o in , I think, a ban k b e n e fits fr o m hav in g a t r u s t
d ep artm en t, in a n o n - m a t e r ia l bu t v e r y r e a l m a n n e r . T h e t r u s t d e p a rtm e n t,
with it s s t r i c t a d h e re n ce to sound fid u c ia r y p r in c ip le s c o n s titu te s the p u lse
beat of c o n s c ie n c e fo r a b an k . B y it s v e r y e x is t e n c e w ith in th e c o r p o r a te s tr u c
ture of a b an k , i t r a d ia te s r e s p o n s i b i l i t y - - a sta n d a rd of duty f o r th e e n tir e
op eration to fo llo w . T h is p u lse b e a t h o p e fu lly r e s o n a t e s even th ro u g h th e
C hinese W a ll w h ich now m u st e x is t b e tw e e n c o m m e r c ia l and t r u s t d e p a r tm e n ts .
I m u s t point out h e r e th a t I a ls o do not find any co m p e llin g m e r it in th e
su g g estio n s th a t t r u s t d e p a r tm e n ts should be spun out a s a f f ilia t e s m a bank
holding co m p a n y . T h e ch an g e e ffe c te d by a sp in o ff to an a f f ilia t e w ould be
slight in d e e d --o n ly c o s m e t ic a t b e s t . T h is is not to sa y th a t I o b je c t to sp m of
of a t r u s t d e p a rtm e n t if a bank fin d s v a lid b u s in e s s r e a s o n s fo r su ch c o r p o r a te
r e s tr u c tu r in g . T h a t is a m a tte r of the b a n k 's m a n a g e m e n t ju d g m e n t. B u t do
not e x p e c t th a t su ch a s e p a r a tio n w ill a n sw e r th e c a ll fo r d iv e s tit u r e .




-3 L et m e e m p h a siz e th at our O ffice is a w a re of the n e c e s s ity of v ig ila n t
L aulation of t r u s t d e p a rtm e n ts of N atio n al b an k s, so th at we a r e ab le to give
L o r o p r ia te and soundly b a se d re b u tta ls to the a rg u m e n ts of bank t r u s t c r i t i c s .
I i b also incu m b en t upon a ll of you, a s t r u s t o f f i c e r s , and upon u s, a s r e g u L o r y o f fic ia ls , to p ro v id e g r e a t e r pu blicity co n ce rn in g the co m p re h e n siv e n e s s
L bank r e g u la to r y p ro c e d u re s in the t r u s t a r e a . T o o often w e h e a r s ta te m e n ts
I and o c c a s io n a lly th e s e even e m a n a te f ro m C o n g r e s s - - th a t would lead the
¡listener to b e lie v e th a t t r u s t d e p a rtm e n ts a r e to ta lly u n re g u la te d . Y ou obviously
L o w b e tte r , but w e m u st s tr iv e to m ak e the public a w a r e of th is situ a tio n . W e
te e d to point out, o v e r and o v e r ag ain if n e c e s s a r y , the ad v an tag es th a t we s e e
for the public in the continued o p e ra tio n of t r u s t d e p a rtm e n ts by c o m m e r c ia l
banks
A t the sa m e tim e w e m u st re c o g n iz e th at if banks a r e to continue to
Lave tr u s t d e p a r tm e n ts , s e v e ra l p r in c ip le s m u s t b e o b s e r v e d , so m e old , so m e
Lew»

L e t m e f i r s t d e a l w ith th e old„

It i s no s u r p r is e to us th a t th e r e a r e c o n f lic t s of i n t e r e s t b e tw e e n a b a n k 's
co m m ercia l o p e r a tio n s and it s t r u s t d e p a r tm e n t. It is a f a c t of lif e w ith w h ich
Lou have liv e d fo r y e a r s . In th e p r o c e s s , ban k s h a v e a c q u ir e d a v e r y r e a l aw areUess of th e p r e c a u tio n s w h ich m u s t be ta k e n so a s to p re v e n t th e c o n f lic t fr o m
prejudicing th e in t e r e s t s o f th e t r u s t d e p a r tm e n t c u s t o m e r s , th e c o m m e r c ia
cu sto m ers! th e p u b lic, o r th e b a n k . T h u s , i t i s not new s to a b a n k e r th a t th e
business of th e b a n k ca n n o t b e m ix e d w ith th a t o f th e t r u s t d e p a r t m e n t- - t h a t
one cann ot be u se d to s e r v e th e o th e r to th e d isa d v a n ta g e of th e f i r s t .
In a d d itio n , th e m o n ito rin g of th e s e c o n flic ts of i n t e r e s t h a s b e e n th e . prim ary ta r g e t of t r u s t d e p a rtm e n t s u p e r v is io n by th e ban k in g a g e n c ie s . T h is
has b een w hat th e t r u s t d e p a rtm e n t e x a m in e r lo o k s f o r . T h s i s th e Pr ™ a ^
concern of th e re g u la tio n s c o n c e r n in g t r u s t d e p a r tm e n ts . W h ile th e s e th ing
are old h a t to you and m e , th ey a r e n o t alw a y s a p p r e c ia te d by th e o u ts id e r .
Y e t w e ca n n o t r e m a in s t a t ic in o u r m u tu al a w a r e n e s s of th e p r o b le m s
which th e c o n f lic t s of i n t e r e s t b e tw e e n a b a n k and i t s t r u s t d e p a rtm e n t p o s e .
This is b e c a u s e w e do n o t liv e in a s t a t ic s o c ie ty o r e co n o m y . As v a r io u s
types of t r u s t a c tiv ity expand , a s new a d a p ta tio n s of tr a d itio n a l t r u s t s e r v ic e
are adopted , a s ban k s th e m s e lv e s s i m ila r ly adapt to th e e m e rg in g H
»
»
and fin a n c ia l n e e d s of o u r n a tio n , i t is in e v ita b le th a t th e r e w ill r e s u lt th e n eed
to apply e s ta b lis h e d fid u c ia r y and r e g u la to r y p r in c ip le s in new c o n t e x ts . Y ou
as b a n k e rs h a v e b e e n doing t h is , a s have w e r e g u la t o r s
One e x a m p le is our
in c re a se d a w a r e n e s s of th e p r o b le m s in h e r e n t m th e s e le c t io n of b r o k e r s ,
another i s th e n e ed to in s u la te t r u s t in v e s tm e n t d e c is io n s fr o m n o n -p u b lic
in fo rm atio n p o s s e s s e d by th e c o m m e r c ia l s id e . E a n k s have_ e s ta b U s h e
policies and p ro c e d u r e s to d e a l w ith th e s e m a t t e r s , and w e W f f i W W
a s u b je c t of s c r u tin y in e x a m in a tio n s . W e a r e now c o n s id e r in g th e ad o p tion
of am en d m en ts to R e g u la tio n 9 and to our in s tr u c tio n s to e x a m in e r s w h ich
will fu r th e r s tre n g th e n our in q u iry h e r e , and p e rh a p s add s o m e c la r it y to the
legal fr a m e w o r k in th e p r o c e s s «




-4 T h e s e w ould deny a c c e s s to c o m m e r c ia l c r e d it f ile s to t r u s t d e p a r tm e n t
investm ent d e c is io n m a k e r s . A lso, the ch a n g es would a r t ic u la t e th e n e c e s s ­
ity th at t r u s t d e p a rtm e n t in v e s tm e n t d e c is io n s ca n n o t b e b a s e d upon n o n ­
public in fo r m a tio n th a t is o b ta in ed ev en by a c c id e n t, fr o m any s o u r c e .
E x a m in e rs w ould m a k e s p e c if i c c h e c k s to v e r i f y th a t th e s e lim ita tio n s a r e
observed .
H o w ev er, i t i s now a p p a re n t th a t w e a r e in an e r a w hen th e a d a p ta tio n
of p r e e x is tin g r e g u la to r y p r in c ip le s and p r o c e d u r e s is not s u f f ic ie n t. New
p rin cip les and p r o c e d u r e s a r e r e q u ir e d in so m e a r e a s . T h is , I th in k , r e s u lt s
p rim a rily fr o m th e f a c t th a t t h e r e h a v e o c c u r r e d so m e s tr ik in g ch a n g e s m th e
c h a ra c te r o f th e A m e r ic a n p u b lic. T h e y no lo n g e r a c c e p t th in g s on fa ith , but
demand to b e in f o r m e d - - t o m a k e t h e ir own ju d g m e n ts . And, a s m u ch as
p o ssib le , i t i s n e c e s s a r y , t h e r e f o r e , th a t th e y be in fo r m e d a s to th e o p e r a tio n
of bank t r u s t d e p a r tm e n ts , and th e e x te n t of th e r e la tio n s h ip s w ith th e b a n k 's
c o m m e r c ia l c u s t o m e r s . D is c lo s u r e o f th e s to c k h o ld in g s --in d e e d , of a ll the
a sse ts h e l d - - i n t r u s t d e p a r tm e n ts is e s s e n t ia l to e n a b le ban k s to co n tin u e to
hold th e c o n fid e n c e o f th e p u b lic . Know ing w hat a s s e t s an in s titu tio n p o s s e s s e s ,
and w hat i t h a s done w ith th o s e a s s e t s by w ay of p u r c h a s e s and s a l e s , m ay w e ll
counter m u ch of th e c r i t i c i s m w h ich h a s b e e n m ad e of bank t r u s t d e p a r tm e n ts .
For few a c tu a l a b u s e s of th e b a n k - t r u s t d e p a r tm e n t r e la tio n s h ip h a v e o c c u r r e d ;
most of th e c r i t i c i s m is b a s e d upon su p p o sitio n , upon c o n je c tu r e
m a w o rd ,
upon ig n o r a n c e . D is p e llin g th is ig n o r a n c e , even if i t d o e n 't end th e c r i t i c i s m ,
may m a k e i t m o r e c o n s t r u c t iv e , and lesson th e o p p o rtu n itie s fo r o th e r i n t e r e s t s
to play upon i t fo r th e ir own s e lf is h o b je c t iv e s . I n o te th a t J a y H a m b leto n
and I a r e in a g r e e m e n t h e r e .
W ith th e s e ends in m in d , th is O ffic e is c o n s id e r in g th e is s u a n c e of
re g u la tio n s r e q u ir in g n a tio n a l ban k s to d is c lo s e th e ir a s s e t h o ld in g s , and
th eir tr a n s a c tio n s in s e c u r i t i e s to th is O ffic e and to th e p u b lic . I hope th a t w e
may be a b le to p u b lish th e s e p r o p o s a ls fo r co m m e n t in th e n e a r fu tu r e . W e
would hop e to b e a b le to d e v elo p r e g u la tio n s w h ich w ould apply to a ll n a tio n a l
banks of a s ig n if ic a n t s i z e - - s a y w ith t r u s t a s s e t s of o v e r $100 m illio n , and
all tr a n s a c tio n s o v e r a c e r t a in a g g r e g a te a m o u n t--p o s s ib ly $ 5 0 0 , 0 0 0 , w h ich
have o c c u r r e d in a q u a r t e r would be d is c lo s e d . W e s h a ll a ls o s e e k a u n i­
fo rm ity of r e g u la tio n am ong th e th r e e bankin g a g e n c ie s . T h e y now h a v e a
u n ifo rm an n u al r e p o r t . T h e p ro p o se d r e p o r ts cou ld b e adopted in lie u o f the
p re se n t r e p o r t s f o r b a n k s a b o v e th e r e q u is it e s iz e fo r e x a m p le . A c c o rd in g
to our f ig u r e s , if th e $100 m illio n cu to ff is u s e d , i t would a f f e c t so m e 200
N ational b an k s and 100 S ta te b a n k s . I a m s a t is f ie d th a t w e h a v e th e s ta tu to r y
au th o rity to r e q u ir e r e p o r t s of th is n a tu r e . I w ould hope th a t any le g is la tio n
which m ig h t b e c o n s id e r e d in th is a r e a w ould b e d r a fte d so a s not to r e s t r i c t
the f le x ib ility of p r e s e n t a u th o r ity . It is v e r y im p o r ta n t th a t w e b e m a
p o sition to re sp o n d to ch an gin g c ir c u m s t a n c e s . It m ay be th a t th e r e i s no
need f o r a s ta tu to r y r e q u ir e m e n t. P o s s ib ly th e a p p r o p r ia te r e g u la to r y a g e n c ie s




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5

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including th e So E» C . , m ig h t c a u s e th e in s titu tio n s u nder th e ir ju r is d ic t io n
in th is m a n n e r to r e p o r t th e in fo r m a tio n n e c e s s a r y f o r e a c h a g e n cy to c a r r y
out its fu n c tio n s , and m a k e th a t in fo r m a tio n a v a ila b le to e a ch o th e r , and to
the publico T h u s , X hope th e S . E , Co and a ll o th e r a ffe c te d r e g u la to r y b o d ie s
w ill view th is p r o p o s a l w ith f a v o r 0 W e w ill w o rk w ith th e m to m e e t any
p ro b lem s w h ich th ey m ig h t h av e w ith our p r o p o s a ls . Knowing th e c h a r a c t e r
and a b ility of th e C o m m is s io n e r s and th e s t a ff of the S . E . C . a s I do, I a m
o p tim istic th a t w e c a n a c h ie v e a m u tu a lly s a t is f a c t o r y r e s u lt to th e b e n e fit
of a ll c o n c e r n e d , in clu d in g th e p u b lic.
T h e r e a r e o th e r a r e a s of r e f o r m w hich we m u s t r e c o g n iz e . I t c o m e s
as no s u r p r is e to tr u s tm e n th at th e b o tto m lin e of m o s t t r u s t o p e ra tio n s
ap p ears in r e d . F e e s c h e d u le s o fte n a p p e a r d e sig n e d only to c o v e r e x p e n s e s ,
and even th en l i b e r a l e x c e p tio n s a r e m ad e w hen a co m m u n ity n eed o r a
c o m m e rc ia l c u s to m e r is to be s e r v e d - - p a r t ic u la r ly th e l a t t e r . N e ith e r is i t
s u r p r is in g , a s h a s b e e n r e c e n tly r e p o r te d , th a t so m e bank c r i t i c s h av e c o n ­
cluded th a t s in c e b a n k fid u c ia r y o p e ra tio n s a r e n o t p r o fita b le , c o r n e r s h av e
been cu t in th e s e r v i c e s p ro v id ed in o r d e r to e f fe c t e c o n o m ie s . I f e e l th a t
banks h av e le f t th e m s e lv e s open to th e c r i t i c i s m th a t s in c e th e ir fid u c ia r y
fees do not p ro d u ce a p r o fit, th e ir s e r v i c e s m u s t b e i n f e r i o r . T h is , I
u n d erstan d , is one b a s is of th e r e p o r te d c o n c lu s io n of R a lp h N a d e r 's C e n te r
fo r C o rp o ra te R e s p o n s ib ility in it s study of th e t r u s t o p e ra tio n of F i r s t
N ational C ity B a n k , th a t b a n k s , in g e n e r a l, do n o t p ro v id e in d iv id u a l s e r v i c e ,
as they c la im , bu t u s e th e a s s e m b ly lin e a p p ro a c h . No s o p h is tic a te d tr u s tm a n
would deny th a t u n ifo rm a g r e e m e n ts a r e p ro m o te d and c o lle c tiv e in v e s tm e n t
funds a r e u tiliz e d in our b a n k s . H o w ev er, th e u s e of th e s e to o ls is e a s ily I
defended, and ca n n o t f a ir ly b e c h a r a c t e r iz e d a s " a s s e m b ly lin e . " E c o n o m ie s
of s c a le m ay b e a m o r e d e s c r ip tiv e and m o r e r e a l i s t i c d e fin itio n .
N ot only h av e m o s t t r u s t d e p a rtm e n ts b e e n u n p ro fita b le in th e p a s t,
but m a n a g e m e n t in a n u m b e r o f b an k s s e e m s to b e co n te n t to le t th e m r e m a in
so in th e fu tu r e . A s i n i s t e r c o n c lu s io n m ig h t b e draw n fr o m t h is , th a t ban k s
a re w illin g to o p e r a te an a p p a re n tly u n p ro fita b le t r u s t d e p a rtm e n t b e c a u s e
th e ir g r e a t e s t re w a r d s e x is t in u n d is c lo s e d fo r m . W hat w e r e a c c e p ta b le
p r a c tic e s in th e p a s t m ay b e v iew ed w ith th e s u s p ic io n th a t th ey a r e lu rk in g
e v ils . In d eed , th e v e r y f a c t th a t b a n k s hold a v a s t am ou n t of s to c k s of
c e r ta in c o r p o r a tio n s is b e in g q u e stio n e d th is v e r y day b e fo r e a s u b c o m m itte e
of the U nited S ta te s S e n a te . In p re v io u s h e a r in g s b e fo r e th is s a m e s u b c o m m it
te e , i t w as su g g e s te d th a t b a n k s w e r e w re c k in g th e s to c k m a r k e t and m ay even
be gu ilty of m a n ip u la tio n of th e m a r k e t - - t h e r e w a rd h e r e b e in g th e c o n c e n t r a ­
tion of e c o n o m ic pow er th a t b a n k s c o n tr o l th rou g h th e ir t r u s t d e p a r tm e n ts .
O th ers h av e p o in ted an a c c u s in g fin g e r a t b an k s fo r a b u s e s m the a u th o r iz e
p r a c tic e of m a in ta in in g u n in v este d t r u s t c a s h b a la n c e s m th e b a n k 's c o m ­
m e r c ia l d e p a r tm e n t. T h e c la im is m ad e th a t th e s e b a la n c e s a r e e x c e s s iv e ,
re s u ltin g in u n ju s tifie d p r o fits fo r th e b a n k . T h is c la im is g iv en m o r e




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6

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c re d ita b ility , in th e e y e s of th e p u b lic , by s ta te m e n ts of t r u s t o f f ic e r s th a t
their d e p a rtm e n t would only b e p r o fita b le if c r e d it is g iv en fo r t r u s t b a la n c e s .
Checking fo r e x c e s s iv e t r u s t c a s h b a la n c e s h a s b e e n g iv en h ig h p r io r ity by
our tr u s t e x a m in e r s fo r m any y e a r s . It h a s b e e n our e x p e r ie n c e th a t th e r e
are v e ry few a b u s e s in th is a r e a in n a tio n a l b a n k s . In r e c e n t y e a r s t r u s t
balances h av e b e e n s ig n ific a n tly re d u c e d th ro u g h th e u se of s h o r t - t e r m
co lle ctiv e in v e s tm e n t funds and v a r ia b le am ou n t n o te s w h ich p ro v id e fo r
inv estm ent of c a s h f o r p e rio d s a s s h o r t a s one d ay . B u t the q u e s tio n s w ill
continue to a r i s e a s long a s t r u s t d e p a rtm e n ts a r e not p r o fita b le on th e
basis of fe e in c o m e .
T h e co n tin u a tio n of an u n p ro fita b le t r u s t d e p a rtm e n t is s u b je c t to even
more le g itim a te c r i t i c i s m , I b e lie v e . P ro b a b ly m o s t dam ning is th e
attitude to w ard th e d e p a rtm e n t th a t th is n a tu r a lly ten d s to c r e a t e on th e p a r t
of a b a n k 's m a n a g e m e n t. New r e s o u r c e s , bo th hu m an and m a t e r i a l, m ay
appear b e t t e r a llo c a te d to th e p r o fit c e n t e r s . T h e r e s u lt w ill be a d e c lin e in
the e ffic ie n c y of th e d e p a rtm e n t and of th e q u a lity of it s p ro d u ct, w h ich only
tends to h e ig h te n it s u n p ro fita b ility » T h e p e r s o n n e l of th e t r u s t d e p a rtm e n t
may be le s s ap t to be p ro m o te d w ith in th e b a n k - - t h e ir m o tiv a tio n s u f f e r s ,
and o n ce a g a in th e q u a lity of th e ir p ro d u ct.
If n e c e s s a r y to p ro v id e a r e a s o n a b le m a r g in of p r o fit, b a n k s shou ld
give s e r io u s c o n s id e r a tio n to r e v is in g th e ir fe e s c h e d u le s to r e f l e c t th e tr u e
value of th e s e r v i c e s w h ich th ey a r e p ro v id in g . F u r t h e r m o r e , th e e s ta b lis h e d
fee sch e d u le shou ld b e fo llo w ed even if th e p r o s p e c tiv e c u s to m e r h a s a s u b ­
stan tial c o m m e r ic a l r e la tio n s h ip w ith th e b an k . I s u g g e s t th a t i f th e s e p a r a te
id en tities of c o m m e r ic a l and t r u s t d e p a rtm e n ts a r e not o b s e r v e d by bank
m an agem en ts in th e p r ic in g o f th e ir p r o d u c ts , th ey a r e p e r m ittin g a grou p
of p o te n tia lly d am ag in g c o n f lic ts of i n t e r e s t to c o n t in u e - - c o n f lic t s w h ich w e
may no lo n g e r be a b le to t o l e r a t e . T h is m ay b e v iew ed a s an e x te n s io n of
the " C h in e s e W a ll" ; I f e e l it is n e c e s s a r y if b a n k s ' m a n a g e m e n ts a r e to m a k e
a s e r io u s c o m m itm e n t to th e ir co n tin u a tio n of th e t r u s t b u s in e s s .
J u s t a s w e tend to blu n t th e in s tr u m e n t w ith w h ich we w r it e , so a ls o
can w e d u ll and b lu r th e tr u e m e a n in g s of ou r m o s t f a m ilia r w o rd s w ith
co n stan t r e p e titio n .
R e f le c t , if you w ill, on w hat th e w o rd s " f id u c ia r y " and " t r u s t " r e a lly
m ean.
If "d u ty " is th e m o s t s u b lim e w ord in th e E n g lis h la n g u a g e --a n d m an y
have liv e d and died in th a t b e l i e f - - t h e n th e a s s u m p tio n of a fid u c ia r y duty
m ust be th e h ig h e s t c a llin g to w h ich a c o n s c ie n tio u s b a n k e r ca n re s p o n d .




-7 If " t r u s t " is th a t d e g r e e of e a rn e d r e s p e c t and c o n fid e n c e w ithou t
which no b an k ca n a d e q u a te ly s e r v e it s c u s to m e r s , th en no e f fo r t should
be sp a re d to k e e p i t in v io la te .
If p e r io d ic d is c lo s u r e of a g g r e g a te h o ld in g s and tr a n s a c tio n s m ad e
in bank t r u s t d e p a rtm e n ts ca n s tre n g th e n p u blic c o n fid e n ce in th e so u n d n ess
of a s y s te m w o rk in g fo r th e g e n e r a l good, w e should w e lc o m e it ,
I h av e fu ll co n fid e n c e in th e hig h e th ic a l sta n d a rd s th a t c h a r a c t e r iz e
bank t r u s t a c t i v i t i e s . G iv en a f u lle r u n d e rsta n d in g , I a m s u r e th a t th e
public w ill s h a r e th a t c o n fid e n c e , I count on th e ban k in g in d u stry fo r fu ll
c o o p e ra tio n to th a t end.




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