Northern Trust In Chicago Is Committed To Building A National, And A Global, Franchise For Our Key Businesses To Better Serve Our Clients And Probate

fdic.gov, Sep 13, 2005

Northern Trust is a multi-bank holding company headquartered in Chicago, Illinois. Northern Trust is a leading provider of investment management, asset and fund administration, fiduciary and banking solutions for corporations, institutions and individuals nationally and worldwide. Northern Trust has a growing network of 83 offices in 17 U.S. states and has international offices in 6 countries. As of March 31, 2005 Northern Trust on a consolidated basis had assets under custody of $2.6 trillion, and assets under investment management of $589 billion.

Due to the current regulatory environment, Northern Trust conducts its banking operations primarily through three different charter types. Northern Trust’s primary bank, The Northern Trust Company, was organized in 1889 as an Illinois state chartered bank with its headquarters in Chicago, Illinois. The Northern Trust Company has nearly all of its domestic banking offices in the State of Illinois. The bank engages in interstate lending, fiduciary and other banking activities to the extent permitted under applicable law.

Northern Trust also conducts banking activities through four national bank charters and one federal thrift charter. Northern Trust’s national banks are headquartered in Arizona, Florida, California and Texas, and operate through 52 offices in these states plus one office in Colorado. These national banks were acquired by Northern Trust at various times and they conduct private banking and trust activities in these home states and in various other states. Northern Trust also formed a federal savings bank called Northern Trust Bank, FSB (“FSB”) in 1998 for the purpose of conducting banking activities in various other states under nationwide branching powers. The FSB is headquartered in Michigan and currently has offices in 12 states.

Northern Trust is committed to building a national, and a global, franchise for our key businesses to better serve our clients and to provide attractive returns for our shareholders. It is sub-optimal both economically and organizationally for Northern Trust to have to do business across state lines through different banking charters primarily to avoid confusing business qualification rules or conflicting state laws. Moreover, many of our customers prefer to do business with The Northern Trust Company, as the largest and most creditworthy institution in our affiliated group. If operating through a state charter continues to present incremental cost and legal risk that is not inherent in a national bank charter or federal thrift, Northern Trust will find it increasingly unattractive to retain its state charter rather than convert to a national charter.

Northern Trust enjoys good relationships with each of its bank supervisors. In particular, Northern Trust has found the Illinois Department of Financial and Professional Regulation to be a highly competent and responsive supervisor and regulator. We have also benefited from the highly professional supervisory staff at the Federal Reserve. Northern Trust would prefer to continue these relationships, and we see no reason why our firm should be disadvantaged because our primary supervisors are the Illinois Department of Financial and Professional Regulation and the Federal Reserve rather than the Comptroller of the Currency.

It should also be noted that the certainty provided to our national banks and our FSB through the preemption and other rules and regulations of the OCC and the OTS make it increasingly attractive for Northern Trust to engage in interstate activities through these charters rather that deal with the risk and uncertainty of engaging in such activities through our state chartered bank.

The above description of our banking charters illustrates some of the complexities we must deal with in connection with interstate activities, and some of the increased costs that result from having to maintain multiple banking charters to conduct interstate activities. In our view, if the FDIC were to adopt a rule providing interstate banking parity for insured state banks with respect to national banks and federal thrifts, it would considerably ease the legal risk and regulatory costs that now exist for Northern Trust, and it would result in greater convenience for our customers.

Examples of Risks for State Banks in the Absence of Rulemaking

Some examples may illustrate the risks and disadvantages that Northern Trust and other state chartered banks face when they do business across state lines in the absence of federal rulemaking. Both the lack of certainty about applicable law and conflicts between a home state law and the host state law contribute to these problems.

The Illinois Corporate Fiduciary Act permits Northern Trust to conduct fiduciary activities in another state that are permissible for a trust institution chartered in that state, provided the activities are not prohibited by the laws of Illinois (205 ILCS 620/4A-1). In conducting fiduciary activities in other states, however, it is often not clear whether Northern Trust is required to register, obtain a license or otherwise qualify as a fiduciary. This uncertainty could have an adverse effect not only on Northern Trust’s ability to accept a fiduciary appointment, but also on clients that seek to use the bank’s fiduciary services. In cases in which the applicable law is not clear, Northern Trust has had to enter into fiduciary appointments through a different legal entity, usually one of our national banks or the FSB.
This uncertainty has led to greater complexity and increased costs related to interstate fiduciary activities. It also can be confusing to our customers, who are increasingly mobile or have more than one home, and cannot understand why Northern Trust may not be permitted to deliver services from our home state into other states through a single legal entity. In addition, probate judges and other judicial officials in host states are called on to make decisions from time to time concerning qualifications of an executor or trustee in that state. Given the current lack of certainty as to whether an out-of-state state bank is properly qualified to take on a fiduciary appointment in the host state, many judicial officials tend to favor either a local state bank or a national bank for an appointment and may disqualify the out-of-state state bank.

Contrast this result with the clarity with which national banks are able to conduct the same activities. The National Banking Act provides essentially the same rights for national banks to conduct fiduciary activities interstate that are contained in Illinois law (12 U.S.C. 92a), but the OCC through regulation and interpretation has provided clarity that national banks can conduct fiduciary activities nationally on the same basis as banks located within the host state (12 C.F.R. 9.7(a); see also, OCC Conditional Approval #658, October 13, 2004: “A national bank’s exercise of fiduciary powers in a state is deemed not in contravention of state law if the state permits its own state banks, trust companies, or other corporations that compete with national banks to exercise such powers.” p.3 footnote 5). This degree of certainty articulated by a federal regulator creates an advantage for national banks in conducting such interstate activities compared with state chartered banks.