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4000 - Advisory Opinions
Applicability of Community Reinvestment Act to a Trust Company
FDIC-91-73 August 16, 1991 Alan J. Kaplan, Senior Counsel
In your memorandum dated August 13, 1991, to Alan Kaplan, you asked
that we provide guidance on whether the exemption in section 345.101 of
the FDIC's regulations (12 C.F.R. § 345.101) ("Interpretive
Rule'') to the Community Reinvestment Act ("Act'') would apply to
*** ("Company").
Short Answer
Because it is engaged in lending and deposit activities that are not
incidental to its trust operations, the Company does not qualify for
the exemption from the Act provided by the Interpretive Rule.
The Interpretive Rule
As you know, the Interpretive Rule states, in essence, that certain
"special purpose banks and trust companies not engaged in
lending" are not bound by the FDIC's regulations issued pursuant to
the Act. More specifically, it states that the term "State nonmember
bank. . . [for purposes of Part 345 of the FDIC's regulations] does
not include banks that engage solely in correspondent
banking business, trust company business, or acting as a clearing
agent." [Emphasis added.] Although the term "solely" implies
that the applicable bank must be engaged in nothing other than one of
the listed activities, a prior sentence in the Interpretive Rule states
that "it would be pointless to. . . assess the credit granting
record of institutions that are not organized to grant credit to the
public. . . other than as an incident to their specialized
operations." [Emphasis added.]
A fair reading of the Interpretive Rule, with the recognition of its
stated purpose, supports the conclusion that this exemption from the
Act was intended to apply to entities who are engaged in the
above-mentioned activities but who also may be engaged in other
activities incidental to the "specialized operations" of those
activities. 1
Thus, for example, a trust company that makes certain loans to its
trust customers related to the trust services provided to those
customers likely would come within the exemption provided by
the
{{10-31-91 p.4584}}Interpretive
Rule. 2
This factual determination, however, would have to be made on a
case-by-case basis.
Investors Bank and Trust
Lending Activity. According to the information provided
to us, the Company does not routinely engage in extending credit to the
public on either a wholesale or retail basis. It does, however, make
loans to its trust customers and officers and employees of its parent
company. As of June 30, 1991, such loans totalled approximately $***
million, or 5.3% of the Company's total assets. The loans were made,
in part, for the "purchase of real estate, home improvement and
personal investment." In our view, this lending activity is outside
the intended scope of the Interpretive Rule. It appears that such loans
were not made as an "incident" to the trust operations of the
company, but, perhaps, as a convenience to its trust customers and
individuals employed by its parent company. This lending activity is
not tied to the "specialized operations" of the trust company
contemplated (and required) by the Interpretive Rule. Thus, the Company
would be subject to the Act and Part
345. 3
Deposit Activity. As also indicated in the materials
provided to us, the Company does not acquire deposits from the
"general public," but does accept deposits (other than trust
funds) from trust customers and employees of its parent company. These
deposits, as of June 30, 1991, totalled approximately $*** million, or
89.2% of the Company's total assets. Because the deposits in issue are
not funds either awaiting investment or otherwise held in connection
with the "specialized operations" in which the Company is
engaged, it cannot be said that this deposit activity is incidental to
the Company's trust business. Thus, irrespective of whether the loan
activity discussed above would disqualify the Company from the
exemption provided by the Interpretive Rule, this deposit activity
would alone place the Company outside the intended scope of the
Interpretive Rule. Therefore, the exemption would not be available to
the Company.
1This conclusion is supported by the Legal Division memorandum
dated October 3, 1978, to the FDIC Board of Directors ("Board
Memorandum") on the Board's consideration and adoption of Part 345
and the Interpretive Rule. The memorandum states, in pertinent part,
that "the interpretation would apply to a small number of special
purpose trust companies engaged primarily in corporate trust
accounts. . . and [which] receive deposits solely as an
incident of the trust business. . . ." [Emphasis added.] Go Back to Text
2In a letter dated March 9, 1979, by FDIC Boston Regional
Counsel Thomas Lawless to a trust company in Boston, Massachusetts
("Lawless Letter"), Mr. Lawless states: "[permissible lending
within the context of the Interpretive Rule] applies only when the
extension of credit facilitates the accomplishment of the specialized
objectives of the bank, as is evidently the case with extensions of
credit related to securities transactions under some circumstances, for
example." Go Back to Text
3As noted in the Board Memorandum, the Interpretive Rule was
intended to apply to "trust companies which are not engaged in
credit granting activities." This conclusion also is supported by
the Lawless Letter. Go Back to Text
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