A request by a Merrill Lynch subsidiary for authority to
operate a general trust business in Oklahoma continues to cause a
stir, even though the company has backed away from the matter.
Paul Foster, general counsel for the Oklahoma Banking
Department, has continued his research into the larger question of
the state's authority to regulate out-of-state trusts since the
Merrill Lynch application was withdrawn in September. As part of
that effort, he headed a discussion on how the matter relates to
interstate commerce at a meeting of the nation's state banking
attorneys earlier this month.
"It is important that states act responsibly in these kinds of
issues and to avoid even the appearance of proprietary or parochial
interests or attitudes in our treatment while at the same time
jealously guarding the rights to regulate these financial matters
of a local concern."
He said that was the general attitude among other banking
The controversy erupted in August after Chicago-based Merrill
Lynch Trust Co. of America sought a declaratory order from the
Oklahoma State Banking Board giving it authority to operate in
Merrill Lynch's withdrawal of its application came after what
could be described as a pre-emptive strike launched by in-state
trust companies anxious to protect their territory. The board
granted a motion from the Oklahoma Bankers Association and 20
Oklahoma-based banking and trust companies to intervene in the
Bruce Day, the Oklahoma City attorney representing Merrill
Lynch, said the company has not decided whether or not it will
continue the matter.
Even if Merrill Lynch does not pursue the issue, Foster said it
will gain in importance because trust services are seen as a way to
generate fee income, something banks across the country want to do.
Japanese banks also have begun aggressively entering this business
in America. Foster said he knows such companies are operating in
Oklahoma because he personally received a solicitation from an
out-of-state trust company.
"It is good to have a company like Merrill Lynch to help define
the standards," Foster said. "I think that is something everyone
needs to bear in mind."
Regulations pertaining to interstate trust companies become
very sticky very fast, he said, because Congress has not given
states any specific authority to regulate them.
"The Supreme Court has said that states don't have power in the
absence of Congress giving it to them."
The states have congressional approval to regulate banks
because of such measures as the McFadden Act and the Douglas
Amendment, which deal with interstate branching and bank holding
companies. No such measures apply to trusts, however. The federal
law that does apply deals with not prohibiting interstate commerce.
"Clearly, states can enact laws to protect and preserve the
public health, welfare and economy. So these are competing
interests," Foster said.
He said the question becomes how far states can go to protect
their residents. "That's what Merrill Lynch all comes down to."
Foster commended the firm for being upfront with the state
about its intentions. He said other foreign, or out-of-state, trust
companies have not been so forthright. Finding those companies is
the next step in his research.
"Merrill Lynch was just trying to do it the right way."
Foster said state regulation of foreign corporate trusts falls
into four categories: those that allow the trusts to operate
without having to qualify to do business, those that require them
to qualify, those that allow them to operate if they are based in a
state with a reciprocal law and those that prohibit foreign trusts