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4000 - Advisory Opinions

Whether the Issuance of Large Denomination CD's Causes a Trust Company to Loose its Exemption from the CRA Regulations


July 21, 1994

Sandra Comenetz, Counsel

This responds to your May 12, 1994 letter to Adrienne George requesting confirmation that ("BANK"), a state chartered bank, "would continue to be exempt from the CRA if we were to issue large denomination [CDs] to meet additional funding needs arising from growth in our trust operations." An November 24, 1992 inquiry by BANK of the FDIC resulted in an opinion that BANK was exempt from the CRA under 12 CFR § 345.101 on the basis of your representations that BANK is engaged in investment management, trust and custody activities; BANK's deposits consist almost entirely of funds in investment management and trust accounts being held temporarily pending investment or disbursement; BANK was not organized to extend credit to or receive deposits from the public, and has never solicited such business; and, with minor exceptions, BANK's credit and deposit activities are strictly incidental to its trust operations.

You now state that the growth in assets has led to increased "traditional lending to trust department clients", but that the lending "remains limited and incidental to fiduciary operations," and that you "no longer accept mortgage loans even as an accommodation to customers." To raise additional cash funding you are considering issuing large denomination ($1 million minimum) CDs to be distributed to institutional investors by a nationally known brokerage firm not affiliated with BANK. You would not solicit or seek to develop a base of deposit customers. Funds raised through the CDs would be used strictly for activities related to your trust operations.

Relying on representations in your November 24, 1992 and May 12, 1994 letters, indicating that BANK's credit and deposit activities continue to be incidental to its trust activities, and that the CDs likewise will be incidental to trust operations and issued only to institutional investors and not the general public, we concur that BANK would continue to be exempt from CRA requirements if it issues large denomination CDs. See 12 CFR 345.101. This opinion applies solely to the facts described.

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