The Office of the Comptroller of the Currency (the "OCC") has issued two recent Interpretive Letters that further confirm the preemption of national bank fiduciary powers from various state laws that would seek to restrict those powers. These Interpretive Letters, which were issued in September and October of last year, were first publicly released by the OCC in its December 2008 monthly publication.
In the first letter (OCC Interpretive Letter 1103, dated September 18, 2008), the OCC considered the effect of a North Carolina law which provides that no out-of-state bank, including a national bank, may engage in the trust business in North Carolina unless it maintains a trust office in the state. In order to establish a trust office in North Carolina, an out-of-state bank must:
- obtain a certificate of authority to transact business in North Carolina from the North Carolina Secretary of the State;
- file an annual report with the Secretary of the State;
- provide prior notice to the North Carolina Commissioner of Banks; and
- obtain a license from the Commissioner to exercise fiduciary powers in North Carolina.
Under the North Carolina law, the Commissioner may deny approval of a trust office if the Commissioner determines that the bank lacks the resources to support the office or if the laws of the home state of the out-of-state bank do not provide reciprocal authority to North Carolina based banks.
In reviewing the North Carolina law, the OCC recognized the federal statutory authority contained in 12 U.S.C. § 92a(b) for national banks to exercise fiduciary powers and noted that this authority places no geographic limitation on where a national bank may exercise this authority. Because the requirements of the North Carolina law impose restrictions on the ability of national banks to exercise those statutory powers, the OCC concluded that those requirements were preempted under federal law and not applicable to national banks. The OCC did note in a footnote, however, that a state law requirement for an out-of-state bank to register with a state solely for the purpose of service of process would not be preempted.
In the second letter (OCC Interpretive Letter 1106, dated October 10, 2008), the OCC reviewed certain state law requirements in the states of Florida, Georgia, and South Carolina and concluded that these laws also were preempted for national banks based upon the same rationale as contained in the prior letter.
The Florida law under consideration required any bank seeking to act as a fiduciary in Florida to deposit or pledge securities with a market value equal to 25% of the bank's capital, subject to a limit of $500,000. Because the amount of securities required to be deposited or pledged under the Florida statute was higher than the amount required of national banks under federal law, the OCC concluded that the higher amounts of Florida law were not applicable to national banks.
The Georgia laws under consideration required that an out-of-state bank seeking to exercise fiduciary powers in Georgia must be federally insured and further required that the laws of the home state of the out-of-state bank provide reciprocal authority to Georgia based banks. The OCC concluded that these requirements would have the effect of limiting the exercise of fiduciary powers by a national bank and therefore were not applicable to national banks.
The OCC also reviewed two separate laws in South Carolina. The first provided that a federally-chartered entity without an office in South Carolina could not qualify to serve as a personal representative for a person domiciled in South Carolina. The second required a national bank to obtain written approval from the State Board of Bank Control prior to engaging in the trust business in South Carolina. The OCC determined that both of these laws were preempted for national banks.
These Interpretive Letters regarding the fiduciary powers of national banks continue the trend of recent court decisions and regulatory pronouncements determining that state laws which seek to restrict the ability of national banks to exercise their statutory authorities are preempted by federal law and not applicable to national banks.