Banking on Trust Companies: A Critique of OCC Interpretive Letter 1176

Banking & Financial Services Policy Report, Vol. 40, No. 3 (March 2021)

26 Pages Posted: 27 Apr 2021

See all articles by Michael Townsley

Michael Townsley

Conference of State Bank Supervisors (CSBS)

Date Written: March 31, 2021

Abstract

Through a recently issued interpretive letter, the Office of the Comptroller of the Currency (OCC) put forth an unprecedented legal interpretation in an attempt to expand its authority to charter national trust companies under 12 U.S.C. § 27(a). Specifically, Interpretive Letter 1176 (IL 1176), declares that national trust companies may be chartered to primarily or even solely exercise nonfiduciary powers, including banking powers.

This Article assesses IL 1176 and concludes that Section 27(a) cannot reasonably be interpreted to enable the OCC to charter national trust companies to even primarily, let alone solely, engage in banking and other nonfiduciary activities for two main reasons:

• A national trust company cannot engage in banking and nonfiduciary activities directly through the exercise of banking powers conferred with a national bank charter, but instead, is limited to exercising the fiduciary powers permitted under 12 U.S.C. § 92a. This is what Congress intended in empowering the OCC to charter national trust companies and how that authority has always been construed.

• Nor can a national trust company engage in banking and nonfiduciary activities indirectly through the fiduciary powers permitted under Section 92a because an activity must be “fiduciary” within the meaning of Section 92a for it to be permitted thereunder. This is how Section 92a has always been interpreted and, despite IL 1176 purporting to supersede this precedent, it remains the cornerstone of the OCC’s multi-state fiduciary rule. Therefore, Section 92a cannot, as is asserted in IL 1176, be interpreted to permit national trust companies to engage in nonfiduciary activitiesby bootstrapping state law.

Thus, this Article concludes that the OCC lacks the authority to charter national trust companies to engage in banking and other nonfiduciary activities because they cannot lawfully engage in such activities directly or indirectly. IL 1176’s conclusions to the contrary are entirely lacking in validity.

It seems that the OCC is attempting, through IL 1176, to accomplish with its national trust company chartering authority what it has so far failed to achieve in its recent campaign to create the so-called “fintech charter” under its national bank chartering authority. Both efforts fundamentally reinterpret and expand the OCC’s chartering authority by administrative fiat for the same goal: create a charter that confers all the benefits of being a bank without any of the accompanying burdens or obligations. Just as there is a unity of purpose, IL 1176 unfortunately threatens many of the same disturbing policy implications as are prompted by the fintech charter—namely, a dismantling of the separation of banking and commerce and extension of the federal safety net to large commercial and technology enterprises. Fortunately, for the reasons set out this Article, this new front in the OCC’s quest to expand its chartering authority in unprecedented ways is just as contrary to law as the fintech charter effort itself. So, if the OCC continues down this path of expanding its trust company chartering authority, IL 1176 should meet the same legal fate and be set aside.

Keywords: OCC, Bank Charters, Trust Company Charters, Chartering, National Banks, National Trust Companies, Fiduciary, Non-fiduciary, Trust Business, Banking Powers, Trust Powers, Fiduciary Powers, Banking Business, Trust Companies, Fiduciary Business

JEL Classification: E44, E51, G20, G21, G23, G28, K20, K22, K23, N20

Suggested Citation

Townsley, Michael, Banking on Trust Companies: A Critique of OCC Interpretive Letter 1176 (March 31, 2021). Banking & Financial Services Policy Report, Vol. 40, No. 3 (March 2021), Available at SSRN: https://ssrn.com/abstract=3834609

Michael Townsley (Contact Author)

Conference of State Bank Supervisors (CSBS) ( email )

1129 20th Street NW
9th Floor
Washington, DC 20036
United States

HOME PAGE: http://www.csbs.org

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