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4000 - Advisory Opinions

Trust Company as Depository Institution for Purposes of Depository Institution Management Interlocks Act


November 29, 1985

Pamela E. F. LeCren, Senior Attorney

The following is a response to your October 7, 1985 request for an opinion on whether or not *** is a depository institution for the purposes of Part 348 of the FDIC's regulations governing management official interlocks (12 C.F.R. 348) and the Depository Institution Management Interlocks Act ("Interlocks Act," 12 U.S.C. 3201 et. seq.).

Introduction and Statement of Issue:

As your letter correctly recites, the Interlocks Act and Part 348 of the FDIC's regulations prohibit unaffiliated depository institutions from sharing management officials if the institutions have offices located in the same, contiguous, or adjacent cities, towns, or villages. The term "depository institution" is defined by section 348.2(f) as a commercial bank, a savings bank, a trust company, a savings and loan association, a building and loan association, a homestead association, a cooperative bank, an industrial bank, or a credit union. The term "management official" is defined to include directors (including advisory and honorary directors) and employees or officers with management functions.

According to your letter, *** currently president and director of the Trust Company, is also serving as president, CEO, and director of *** (chartered as ***, converted to state charter in 1970's). *** has served in these positions since 1983. *** is an affiliate of the Trust Company within the meaning of the Interlocks Act (See 12 U.S.C. 3201(3)(A)) inasmuch as both institutions are owned by the same bank holding company (***). The present affiliation between *** and the Trust Company is expected to terminate in March, 1986 when *** is acquired by ***. Upon termination of the affiliation, *** would be required under section 348.6 to terminate the above-described management official interlock within 15 months of the acquisition if the Trust Company is a "depository institution" for the purposes of the Interlocks Act and Part 348. Assuming that the Interlocks Act does apply, the management official interlock in question would not be grandfather as *** service at the Trust Company and *** did not begin prior to November 10, 1978. (See 12 C.F.R. 348.5)


The FDIC's Legal Division has not had occasion to render an opinion similar to the one sought by your October 7, 1985 letter, i.e., determine that an organization is not a depository institution despite the fact that it is one of the entities (in this case a trust company) specifically named in the definition. We have had occasion to opine, however, that the definition is enumerative and not illustrative, i.e., an entity is not a depository institution covered by the Interlocks Act unless it is one of the specifically identified entities.

Although the purpose of the Interlocks Act as reflected in its legislative history is to reduce the anticompetitive impact of the interlocks "on the flow of credit and financial policies and practices to the detriment of communities, neighborhoods, small businessmen, home buyers, farmers, consumers, and others in need of credit on the best terms possible," (H.R. Rep. No. 95--1383, 95th Cong., 2d Sess. (1978), at 14) the fact remains that the definition does not include many types of financial intermediaries that extend credit. For example, mortgage and finance companies engage in consumer lending as do commercial banks and savings and loan associations, however, neither mortgage nor finance companies are listed in the definition of depository institution. The one common denominator among the entities listed in the definition that is not present in the case of other financial intermediaries seems to be the taking of deposits. The logic of this conclusion is born out by the terminology of the Interlocks Act itself in that the word "depository" is used in the statute.

Insofar as the inclusion of trust companies within the definition is concerned, it is clear upon a brief review of state law that in many instances the words "trust company" are used interchangeably with the word "bank" and that, in these instances, trust companies are given the same powers and authority as commercial banks (including the authority to take deposits). We are prepared to conclude that the type of trust company encompassed within the scope of the Interlocks Act is one that takes deposits other than trust funds. (This is also the type of trust company that is eligible for federal deposit insurance. In addition to the taking of deposits, all the entities listed in the definition are organizations that are eligible for federal deposit insurance.)

According to your letter, the Trust Company was founded in 1905 by *** to provide banking and trust services to the residents of *** which was itself founded by *** to serve as a community for the employees of the ***. The Trust Company was formed under state charter as a commercial bank with trust powers. In 1909 *** founded the ***, a school for the education of orphan children, and the *** which provided for the endowment and operation of the school. The Trust Company was named trustee of the ***. The trust instrument requires that the Board of Managers of the school be selected from the Board of Directors of the trustee (as indicated, the Trust Company).

The *** was established in 1925 to take over the Trust Company's commercial banking functions. On May 28, 1925 the Trust Company ceased its commercial banking activities and by resolution of June 11, 1925 the Board of Directors of the Trust Company voted to agree to the assumption by *** *** of the Trust Company's deposit liabilities. In August of 1935, the Trust Company amended its articles of incorporation so as to provide that "the business of the corporation shall be that of a trust company . . . subject to all the limitations imposed by the [Pennsylvania] Banking Code" and so as to "surrender and renounce the right to engage in and do a general banking business." The amendment to the Trust Company's articles of incorporation was approved by the State on September 6, 1935.

The Trust Company is presently uninsured and has no deposit liabilities. Trust companies are not authorized to take deposits under Pennsylvania law. (See Pa. Stat. Ann. tit. 7, §§ 105, 401 (Purdon)). The Trust Company has continued to engage in a certain amount of lending activities (first mortgage loans on single family homes considered by the Trust Company to be investments), however, no mortgage loans have been made since 1980. With the exception of these limited lending activities, the Trust Company's functions are confined to fiduciary activities primarily with respect to the *** Trust for which it is trustee (over $500 million in assets under administration) and to some extent with respect to other trust accounts (200 non- *** trusts totaling $18.7 million in assets under administration). The Trust Company has no present intent to actively solicit new trust business and does not solicit business from the general public. *** engages solely in commercial banking and does not have trust powers.


In view of all the circumstances set forth above, we do not feel that the Trust Company should be considered a "depository institution" for the purposes of the Interlocks Act. Although it was chartered as a commercial bank, the Trust Company has surrendered the right to conduct a general banking business and it is neither authorized to take deposits nor does it in fact do so. The Trust Company therefore does not appear to be the type of trust company intended to be covered by the Interlocks Act. What is more, the Trust Company's activities since 1935 have been largely confined to the administration of one trust. Any other trust or lending activities on the part of the Trust Company account only for a minimal portion of its overall activities. Thus, in many respects, the Trust Company could simply be viewed as a trustee of one large trust. Lastly, we do not feel that permitting the dual management relationship in this instance will adversely impact consumers in the relevant market as the Trust Company and *** do not offer the same services to the public. (In fact, one could say that the Trust Company does not deal with the public).

If the Trust Company should in the future take unto itself the power to do a commercial banking business and begin to take deposits (other than trust funds), we would consider it to be a depository institution subject to the Interlocks Act. Additionally, should the Trust Company substantially increase its lending and other activities, we reserve the right to reassess this opinion in light of those changed circumstances.

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