[Code of Federal Regulations]
[Title 12, Volume 3]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR221.112]

[Page 45-46]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 221--CREDIT BY BANKS AND PERSONS OTHER THAN BROKERS OR DEALERS FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCK (REGULATION U)--Table of Contents
 
Sec. 221.112  Loans by bank in capacity as trustee.

    (a) The Board's advice has been requested whether a bank's 
activities in connection with the administration of an employees' 
savings plan are subject to this part.
    (b) Under the plan, any regular, full-time employee may participate 
by authorizing the sponsoring company to deduct a percentage of his 
salary and wages and transmit the same to the bank as trustee. Voluntary 
contributions by the company are allocated among the participants. A 
participant may direct that funds held for him be invested by the 
trustee in insurance,

[[Page 46]]

annuity contracts, Series E Bonds, or in one or more of three specified 
securities which are listed on a stock exchange. Loans to purchase the 
stocks may be made to participants from funds of the trust, subject to 
approval of the administrative committee, which is composed of five 
participants, and of the trustee. The bank's right to approve is said to 
be restricted to the mechanics of making the loan, the purpose being to 
avoid cumbersome procedures.
    (c) Loans are secured by the credit balance of the borrowing 
participants in the savings fund, including stock, but excluding (in 
practice) insurance and annuity contracts and government securities. 
Additional stocks may be, but, in practice, have not been pledged as 
collateral for loans. Loans are not made, under the plan, from bank 
funds, and participants do not borrow from the bank upon assignment of 
the participants' accounts in the trust.
    (d) It is urged that loans under the plan are not subject to this 
part because a loan should not be considered as having been made by a 
bank where the bank acts solely in its capacity of trustee, without 
exercise of any discretion.
    (e) The Board reviewed this question upon at least one other 
occasion, and full consideration has again been given to the matter. 
After considering the arguments on both sides, the Board has reaffirmed 
its earlier view that, in conformity with an interpretation not 
published in the Code of Federal Regulations which was published at page 
874 of the 1946 Federal Reserve Bulletin (See 12 CFR 261.10(f) for 
information on how to obtain Board publications.), this part applies to 
the activities of a bank when it is acting in its capacity as trustee. 
Although the bank in that case had at best a limited discretion with 
respect to loans made by it in its capacity as trustee, the Board 
concluded that this fact did not affect the application of the 
regulation to such loans.