gage loans without reference to the enumerated 5 restrictions of section 24 of the Federal Reserve Act.

[27 F.R. 4470, May 10, 1962]

§ 7.4

National banks; purchase without limitation of participation certificates issued and guaranteed by the Export-Import Bank of Washington. The Comptroller of the Currency has ruled with respect to the purchase by national banks of participation certificates issued and guaranteed by the Export-Import Bank of Washington as indicated in the following letter addressed to the President and Chairman of the Export-Import Bank of Washington:

Reference is made to your letter dated April 10, 1962, concerning the Participation Certificates, Series "A" of 1962, dated May 1, 1962, payable in 20 semiannual principal installments beginning November 1, 1962, with 42 percent interest to be issued and guaranteed by the Export-Import Bank of Washington.

You have submitted for our examination draft copies of the announcement offering certain commercial banks these participation certificates, and the form of certificate. You request our opinion on whether national banks will be permitted to purchase these participation certificates and to what extent.

We have examined the documents submitted and it is our opinion that since the certificates in question will be guaranteed by Export-Import Bank of Washington, which is an independent agency of the U.S. Government, under the applicable statutes and regulations national banks will be permitted to purchase these certificates without limitation.

[27 F.R. 4470, May 10, 1962]

§ 7.5 Appointment of directors.

(a) The Comptroller of the Currency has been requested to interpret the National Bank Act, 12 U.S.C. section 1 et seq., with respect to the propriety of action by the board of directors of a national bank to increase the number of directors between meetings of stockholders, and to appoint persons to fill such vacancies.

(b) The best interest of the bank and of the community are served when wellqualified persons may be added to the board of directors during the year without the expense attendant upon the calling of a special meeting of stockholders, and without the necessity of the resignation of an incumbent director of the bank in order to create a vacancy.

(c) The Comptroller is of the opinion that, if so authorized by the bank's Arti

cles of Association or an amendment thereto, a majority of the full board of directors of a national banking association may properly increase the number of its directors within the limits specified in 12 U.S.C. 21a and appoint persons to fill the resulting vacancies between meetings of stockholders. It is, however, the Comptroller's view that any such authorization to increase the number of directors should be limited to not more than two directors in any one year. (R.S. 324 et seq., as amended; 12 U.S.C. 1 et seq.) [27 F.R. 12811, Dec. 28, 1962]

§ 7.6 Preemptive rights.

(a) The Comptroller has been requested to reconsider the position expressed in paragraph 6110 of the Digest of Opinions, which states that all stockholders of a national banking association are entitled, in preference to any other persons, to the opportunity to purchase additional stock resulting from an increase in the bank's capital, in proportion to the number of shares held by them respectively.

(b) The Comptroller is of the opinion that, by vote of the holders of two-thirds of its voting stock, a national banking association may properly adopt Articles of Association or amend existing Articles of Association in order to modify or eliminate pre-emptive rights. The statement to the contrary in paragraph 6110 of the Digest of Opinions is hereby revoked.

(R.S. 324 et seq., as amended; 12 U.S.C. 1 et seq.) [27 F.R. 12811, Dec. 28, 1962]

PART 8—ASSESSMENT OF FEES; NATIONAL BANKS, DISTRICT BANKS

Sec.

8.1 Scope and application.

8.2

8.3

Semi-annual assessment rate.

Daily rate for examinations and investigations.

8.4 Filing fee for applications for approval. AUTHORITY: §§ 8.1 to 8.4 issued under R.S. 5240, as amended; sec. 3, 47 Stat. 1566; 12 U.S.C. 482; 26 DC Code 102.

SOURCE: §§ 8.1 to 8.4 appear at 27 F.R. 2396, Mar. 14, 1962.

§ 8.1 Scope and application.

Pursuant to the authority contained in R.S. 5240, as amended, 12 U.S.C. 482, and in section 3, 47 Stat. 1566, 26 D.C. Code 102, the Comptroller of the Cur

authorizing such national bank to exercise such powers. If the applying bank is not authorized to exercise any of such powers, the application should be made on Form TA-1; and if the applying bank is authorized to exercise one or more but not all of such powers, the application should be made on Form TA-2.

(b) In the case of the organization of a new national bank, the conversion of a State bank or trust company into a national bank, or the consolidation of two or more national banks or of a State bank or trust company with a national bank under the charter of the latter, when none of the national banks involved in such consolidations is authorized to exercise trust powers, application for such a permit may be made in advance on behalf of the new, converted or consolidated national bank, and the permit may be issued simultaneously with the consummation of such organization, conversion or consolidation. Such application may be made by the organizers in the case of a new national bank, by the State bank or trust company in the case of a conversion, and by the national bank the charter of which is to be retained in the case of a consolidation.

(c) Each application made under the provisions of this section shall be executed and forwarded in duplicate, together with duplicate copies of any documents containing any information submitted with the application, to the Chief National Bank Examiner of the region in which the applying bank is located.

§ 9.2 Consideration of applications.

In passing upon an application for permission to exercise the fiduciary powers authorized by Public Law 87-722, 76 Stat. 668, the Comptroller of the Currency will give special consideration to the following matters:

(a) Whether, under the provisions of Public Law 87-722, 76 Stat. 668, the bank has sufficient capital and surplus to render it eligible to receive permission to exercise the fiduciary powers applied for and whether the granting of any or all of such powers would be in contravention of State or local law;

(b) The needs of the community for trust service of the kind applied for and the probable volume of such trust business available to the bank;

(c) The general condition of the bank, particularly the adequacy of its net capital and surplus funds in relation to the character and condition of its assets and to its deposit liabilities and other corporate responsibilities, including the proposed exercise of trust powers;

(d) The general character and ability of the management of the bank;

(e) The nature of the supervision to be given to the proposed trust activities, including the qualifications and experience of the members of the proposed trust investment committee;

(f) The qualifications, experience and character of the proposed executive officer or officers of the trust department;

(g) Whether the bank has available competent legal counsel to advise and pass upon trust matters whenever necessary; and

(h) Any other facts and circumstances that seem to it proper.

§ 9.3 Consolidation of two or more national banks.

Where two or more national banks consolidate under the provisions of the Act of Congress approved November 7, 1918, as amended (40 Stat. 1043, 44 Stat. 1225, 48 Stat. 190, 49 Stat. 718, 719; 12 U.S.C. 33, 34, 34a), and any one of such banks has, prior to such consolidation, received a permit from the Board of Governors of the Federal Reserve System or the Comptroller of the Currency to act in fiduciary capacities which is in force at the time of the consolidation, the rights existing under such permit pass by operation of law to the consolidated bank and the consolidated bank may act in such fiduciary capacities in the same manner and to the same extent as the bank to which such permit was originally issued; and no new application to continue to act in such capacities is necessary. However, in order that the records of the consolidated bank may be complete and that it may have convenient evidence of its right to exercise trust powers, the Comptroller of the Currency, when the consolidation has been consummated, will issue a certificate to the consolidated bank showing its right to exercise the trust powers theretofore granted to any of the national banks taking part in the consolidation.

§ 9.4 Consolidation of State bank with national bank.

Section 3 of the Act of Congress approved November 7, 1918, as amended (44

Stat. 1225, 48 Stat. 190, 49 Stat. 719; 12 U.S.C. 34a), authorizes any bank, trust company, savings bank, or other banking institution incorporated under the laws of any State or in the District of Columbia to be consolidated directly with a national bank located in the same State, county, city, town, or village under the charter of such national bank, and provides in effect that, when such consolidation is consummated, the consolidated national bank shall succeed to the specific fiduciary appointments, designations and nominations of the State institution at the time of the consolidation. It is not necessary for the national bank to have a permit from the Comptroller of the Currency in order to administer the specific trusts to which it thus succeeds, but the provision does not confer upon the consolidated national bank the right to act generally in fiduciary capacities or to undertake any other trust business. Unless the national bank already has a permit from the Board of Governors of the Federal Reserve System or the Comptroller of the Currency to act in fiduciary capacities which is in force at the time of the consolidation, it will be necessary for the bank to obtain such a permit before undertaking to act generally in fiduciary capacities or to accept any other trust business.

§ 9.5 Change of name.

If a national bank has received a permit from the Board of Governors of the Federal Reserve System or the Comptroller of the Currency to act in fiduciary capacities and subsequently, while the permit is in force, changes its name under the provisions of the Act of Congress approved May 1, 1886 (24 Stat. 18; 12 U.S.C. 30, 31, 32), it is not necessary for the bank to make a new application to continue to act in such capacities. However, in order that the records of the bank may be complete and that it may have convenient evidence of its right to exercise trust powers under its new name, the Comptroller of the Currency, when such change in name has been legally effected, will issue a certificate to it under such new name evidencing its right to exercise the trust powers previously granted to it under its old name. § 9.6 Trust department management.

(a) Separate trust department. Every national bank which obtains permission to act in a fiduciary capacity shall, be

fore undertaking to act in such capacity, establish a trust department which shall be separate and apart from every other department of the bank.

(b) Directors' supervision of trust department. The board of directors is responsible for the investment of trust funds by the bank, the disposition of trust investments, the supervision of the trust department, the determination of the policies of such department and for the review of the actions of all committees appointed by the board of directors for the conduct of the trust department. The acceptance of all trusts shall be approved by the board of directors or a committee appointed by such board, and the closing out or relinquishment of all trusts shall be approved or ratified by the board of directors or a committee appointed by such board; and such committee or committees shall be composed of capable and experienced officers or directors of the bank. Any such approval or ratification shall be recorded in the minutes of the board of directors or of such committee as the case may be.

(c) Trust investment committee. Before any such national bank undertakes to act in any fiduciary capacity, the board of directors of the bank shall appoint a trust investment committee which shall be composed of at least three members, who shall be capable and experienced officers or directors of the bank. All investments of trust funds by the trust department of every such national bank shall be made, retained or disposed of only with the approval of the trust investment committee; and such committee shall keep minutes of all its meetings, showing the disposition of all matters considered and passed upon by it. Such committee shall, at least once during each period of 12 months, review all the assets held in or for each fiduciary

It is contemplated that there shall be a committee the members of which shall have a continuity of responsibility for the discharge of the duties of the committee. However, alternates appointed by the board of directors may serve in place of regular members of the committee who are unable to serve on account of vacations, illness, or other good and sufficient reasons if the minutes of the committee show the reason for the service of such alternate in place of the regular member.

account to determine their safety and current value and the advisability of retaining or disposing of them; and a report of all such reviews, together with the action taken as a result thereof, shall be noted in the minutes of the trust investment committee. Such committee may have such additional duties relating to the trust department as may be prescribed by the board of directors.

(d) Executive officer. Before any such national bank undertakes to act in any fiduciary capacity, its trust department shall be placed under the management and immediate supervision of an executive officer or officers qualified and competent to administer trusts, and the duties of such officer or officers shall be prescribed by the board of directors of the bank. Such duties shall be evidenced by the bylaws of the bank or by a resolution duly adopted by and entered in the minutes of the board of directors. All officers and other persons taking part in the operation of the trust department shall be adequately bonded.

(e) Competent legal counsel. Every such national bank shall designate, employ or retain competent legal counsel who shall be readily available to pass upon trust matters and to advise with the bank and its trust department; but the bank shall not engage in the practice of law.

(f) Principles of trust institutions. Every such national bank shall conform to sound principles in the operation of its trust department.

$ 9.7 Books and accounts.

(a) In general. Every national bank which has received permission from the Board of Governors of the Federal Reserve System or the Comptroller of the Currency to exercise fiduciary powers shall keep the books and records of the trust department separate and distinct from other records of the bank. All trust accounts opened shall be so kept as to enable the national bank to furnish such information or reports with respect thereto as may be required by the Comptroller of the Currency. The

The statement of principles of trust institutions approved by the Executive Council of the American Bankers Association is commended to banks operating trust departments.

records of the trust department shall contain full information relating to each trust.

(b) Record of pending litigation. Every such national bank shall keep an adequate record of all litigation pending against it in connection with its administration of any trust.

§ 9.8

3

Examinations of trust department. (a) In addition to examinations by examiners appointed by the Comptroller of the Currency a committee of directors, exclusive of any active officers of the bank, shall, at least once during each period of twelve months, make suitable audits of the trust department or cause suitable audits of such department to be made by auditors responsible only to the board of directors, and shall, likewise at least once during each period of twelve months, ascertain by thorough examination made or caused to be made by such committee:

(1) Whether a review of all the assets in each trust as to their safety and current value and the advisability of retaining or disposing of them has been made in accordance with § 9.6(c);

(2) Whether trust funds awaiting investment or distribution have been held uninvested or undistributed any longer than was reasonably necessary.

(b) Such committee shall promptly make a full report of such audits and examination, in writing, to the board of directors of the bank, together with a recommendation as to the action, if any, which may be necessary to correct any unsatisfactory conditions. The board of directors shall give due consideration to such report and recommendation, together with the latest report of examination by the Comptroller of the Currency or examiners designated by the Board of Governors of the Federal Reserve Sys

a Public Law 87-722, 76 Stat. 668 provides that "The State banking authorities may have access to reports of examination made by the Comptroller of the Currency in so far as such reports relate to the trust department of such bank, but nothing in this Act shall be construed as authorizing the State banking authorities to examine the books, records, and assets of such bank."

While this provision denies to the State banking authorities the right to examine the trust department of any national bank without the bank's consent, it does not prohibit the bank from permitting an inspection of its records by any one it desires.

§ 9.9 Trust funds awaiting investment or distribution.

(a) In general. Funds received or held by a national bank as fiduciary awaiting investment or distribution shall not be held uninvested or undistributed by the bank any longer than is reasonably necessary.

(b) Use in conduct of business of trustee bank. Funds received or held by a national bank as fiduciary awaiting investment or distribution shall not be used by the bank in the conduct of its business, unless the bank, under authorization by its board of directors, first delivers to the trust department, as collateral security:

(1) Bonds, notes, bills, certificates of indebtedness or other direct obligations of the United States, or obligations fully guaranteed by the United States as to principal and interest; or

(2) Other readily marketable securities of the classes in which State trust companies or State banks exercising trust powers are authorized or permitted to invest trust funds under the laws of the State in which such national bank is located; or

(3) Other readily marketable securities of the classes defined as "investment securities" pursuant to section 5136 of the Revised Statutes of the United States, as amended (48 Stat. 184, 49 Stat. 709; 12 U.S.C. 24).

This does not relieve the board of directors of any responsibility for prompt consideration of, and action on, matters criticized in the latest report of examination by the Comptroller of the Currency or the Board of Governors of the Federal Reserve System furnished to the bank or for the prompt consideration and action on any matter coming to the attention of the board of directors from any other source which requires action for the protection of parties at interest.

5 Section 5136 of the Revised Statutes of the United States, as amended, provides that as used in that section "the term 'investment securities' shall mean marketable obligations evidencing indebtedness of any person, co