Letter 28

​​​​​​​Trust Service Offices​

Chapter 307, Laws ​of 1977provides that any trust company bank or any bank exercising fiduciary powers may, with the approval of the Office of Commissioner of Banking, establish and maintain a Trust Service Office at any other bank located in the state. The trust service relationship between the provider bank and the host bank will be governed by a written contract, hereafter referred to as "the Agreement." The Agreement shall be subject to review and prior approval by this Office. Failure by the Commissioner of Banking to reject an application for approval within thirty (30) days from the date of receipt thereof shall constitute approval of such application, unless further supporting data are requested within that time period.

While it is recognized that the Agreements between banks may be so varied as to make it impractical to devise a standardized form contract, certain guidelines have been developed by this Office. The guidelines will be considered by this Office in both the processing of the initial application for approval of Agreements and in the continued supervision of Trust Office activities.

In addition to the usual contract terms, such as names of the parties, the purpose of the contract, consideration, etc., this Office requires that the Agreement address the following points:

1. Range of Fiduciary services to be made available by the provider.

The Agreement is to specifically describe each trust service available through the provider bank at the host bank location. The letter of application is to identify any trust services which the provider bank offers at its home office but which will not be available at the host bank location and describe the standards used to determine these exclusions.

2. Minimum Standards.

The Agreement is to specifically describe any standards used to determine whether a trust account will be accepted by the provider bank such as minimum asset size or minimum fee generation. The letter of application is to identify any differences between the minimum standards which the provider bank applies at its home office and those applicable at the host bank and describe the criteria applied in developing the standards included in the Agreement.

3. Fees.

Describe all fees or other charges to customers whose accounts originate at the host bank. If those fees and charges are different from those which the provider bank applies at the home office, the letter of application is to describe those differences and the reasons for them.

4. Sharing of Fees.

Describe any arrangement for the sharing of fees or expenses by the host and the provider bank.

5. Extensions and/or Amendments.

The Agreement is to provide for written notice to the Office of Commissioner of Banking of any proposed extension or amendment of the Agreement. Such extensions or amendments shall be subject to the Commissioner's prior approval.

6. Termination.

The Agreement shall provide that the Commissioner shall be given ninety (90) days prior written notice in case of termination of an Agreement.

7. Legal Status.

The Agreement is to specifically describe the legal relationships between the parties and provide that a principal-agent relationship is not created between the provider and host banks.

8. Customer Relationships.

The Agreement should cover the subject of soliciting and handling of trust customers' deposits and other non-fiduciary relationships. In this connection, consideration should be given to:

a. solicitation by provider of existing host customers;

b. location of trust account cash balances;

c. disbursements from trust deposit accounts; and

d. location of savings or time deposits generated by fiduciary accounts.

9. Host's Duties.

The Agreement should enumerate specifically the host bank's duties, such as furnishing of office space; providing of customer information, etc.

10. Provider's Duties.

The provider's specific duties and responsibilities should be clearly enumerated in the Agreement; these should include, among other things, the furnishing of qualified trust personnel; a clear explanation to trust customers of the relationship between provider and host bank; maintaining confidentiality with regard to host bank's records, etc.

11. Supervisory Authority.

The Agreement must provide for initial regulatory approval of the application as well as continuing supervisory authority by the Office of Commissioner of Banking.

12. Indemnification.

The provider should agree to indemnify and hold harmless the host bank from damages arising out of the provider-host relationship.

At the time of receipt of an application for approval the Office of Commissioner of Banking may also seek certain other information from the applicants. The following questions would be representative and are designed in addition to assisting the Commissioner in arriving at a determination, to ensure that the contracting parties have considered the ramifications of the Agreement.

1. What analysis has been made of the service area of the host bank to determine the need for trust services; this would be particularly relevant in those cases where the host bank does not exercise fiduciary powers.

2. What will be the projected effect, if any, on the income and expenses of the participating banks?

3. What trust personnel will be made available by the provider bank? Names and background information should be furnished.

The above questions are not intended to be an exhaustive list but do indicate areas of concern to this Office.

The Office of Commissioner of Banking will commence the processing of applications for approval of Agreements as of the date of this letter. Agreements between two national banks need not be reported to this Office but approval from the Comptroller of Currency is required. Agreements between a national and a state bank should be submitted to both this Office and the Office of Comptroller of Currency for approval. This Office will send copies of applications to the FDIC and the appropriate Federal Reserve Bank, whenever the participating banks are subject to their jurisdiction; state chartered banks will then be notified by the FDIC or the Federal Reserve as to Federal requirements.

B​anking Letter 28, September 28, 1978, Commissioner Mildenberg