The Legislature has recently enacted trust structure legislation
which permits banks exercising full trust powers to contract
to supply trust services to the customers of a bank which desires
to make these services available to its customers. The Act,
1975 PA 50 MCLA 487.481a, MSA 23.710(181a), provides that an
agreement between the banks shall not be effective until and
unless it is approved in writing by the Commissioner of the
Financial Institutions Bureau.
This letter is to inform you of the guidelines developed by
the Bureau in regard to the processing of applications for approval
of agreements and for the supervision of this activity by the
Bureau staff. These guidelines have been formulated after consultation
with bankers and their representatives. Both potential providers
and potential users have supplied comments and suggestions which
have been very helpful in developing these guidelines.
It is readily apparent that the agreements between banks may
be so varied as to make it nearly impossible to devise a "form"
contract that would be of any value. Consequently, the form
of agreement is to be left to the discretion of the parties
subject to certain requirements. In addition to the terms that
would be found in any contract relating to the names of the
parties, purpose of the contract, place of performance, consideration,
term, etc., the Bureau would require that provisions be made
for the following:
The Bureau will also seek information supporting the application
for approval. The request for information will list several questions
to which the banks must respond in writing. A copy of the bank's
answer to these questions shall be entered in the minutes of a
meeting of the Board of Directors of the bank.
- Extension or amendment. The contract should provide that
advance notice shall be given to the Commissioner of any extension
or amendment of the agreement and shall be subject to his
- Termination. The contract should provide that the Commissioner
be given prior notice prior to the termination of the agreement
to provide opportunity for comment and consultation regarding
timing and procedures.
- Supervisory Authority. The contract should provide for the
exercise of continuing regulatory and supervisory authority
over the agreement.
In addition to supplying additional information that would
enable the Bureau to make a decision whether to approve or disapprove
the agreement, these questions will insure that the contracting
parties have considered the ramifications of entering into such
an agreement. This method is designed to provide flexibility
for both the banks and the Bureau. By altering the questions
or adding additional questions, the Bureau should be able to
adapt the request for information to the particular circumstances
involved in each proposed agreement or contract.
The following are typical of the questions that will be asked
of each bank. The list is not meant to be exhaustive since circumstances
may require additional information.
We feel the above questions demonstrate some of the areas of concern
that we will be investigating. This method allows the banks to
be flexible in their agreements and at the same time provides
the Bureau with some flexibility in seeking the information necessary
to make a determination to approve or disapprove the agreement.
- What investigation has been made to determine the need for
trust services and what is the result of this investigation?
- What trust services are to be offered? If not all trust
services are to be offered initially, comment on your plans
for offering these services in the future or explain why particular
services will not be offered.
- What procedures will the provider bank have for acceptance
of trust accounts? Size, minimum fees, etc.
- How will this agreement affect the income and expenses of
your bank? As a provider, will the additional income cover
the cost of supplying trust services immediately or at what
date in the future? Cite the cost studies made and the result
of these studies.
- Will the costs of the trust services to the customer be
different from those at provider's bank? If so, what is the
- What are the names of the personnel that will serve in the
trust office? Please furnish a resume' of the qualifications
of the proposed trust officer(s) and other personnel. Note:
This question for provider only.
- Is the proposed trust officer appropriate considering the
requirements of the potential trust customer in terms of education,
background, area of expertise, interests, etc.?
- What operational problems have been considered? What procedures
have been formulated to deal with these problems? Examples:
securities, documents, additional insurance, communications,
confidentiality, allocation of costs, distinguishing fiduciary
from host bank.
- What considerations have been given to the effect of termination
or modification of the agreement in relation to the trust
customer and the banks? What, if any, plans have been made
in this regard?
- Have you considered the possible liability for surcharge
or other actions for damages participation in this agreement
- Have you considered the impact of this agreement on the
host bank's relationship with depositors and customers?
We anticipate that we will begin processing applications for
approval of agreements on August 11, 1975.
||Richard J. Francis, Commissioner
||August 1, 1975