BWM C.S.H.B. 1870 75(R)BILL ANALYSIS


FINANCIAL INSTITUTIONS
C.S.H.B. 1870
By: Marchant
4-2-97
Committee Report (Substituted)



BACKGROUND

During the 74th Regular Session the Texas Legislature adopted the Texas
Banking Act of 1995 (H.B. 1543).  In adopting the Act, Chapters One
through Ten of the Banking Code of 1943 were repealed.  This left Chapter
Eleven of the old Act, which contains regulations that apply to trust
companies, orphaned.   

Following the 74th Regular Session, the House Committee on Financial
Institutions was assigned an interim charge by the Speaker of the House,
James E. "Pete" Laney, to review the laws governing trust companies for
necessary revisions and possible incorporation into the Texas Banking Act.
During the interim, the Banking Commissioner, her staff, and the staff of
the Financial Institutions Committee worked with trust industry
representatives and other interested parties to revise Chapter Eleven. 

The goal of this project was to modernize the state law with which trust
companies must comply and address the needs of the industry in Texas by
developing a stand alone Act entitled the Texas Trust Company Act.  The
Act is intended to grant trust companies the flexibility that is necessary
to permit adaptability in the future in response to the continuing
evolution of fiduciary activities while not diminishing any safeguards for
sound operations of the companies to the protection of their clients,
creditors, and shareholders.   

PURPOSE

If enacted,  H.B. 1870 would place Texas trust companies under a single
free standing Texas Trust Company Act that would provide flexibility, as
well as, fair and safe regulation of the industry.    

RULEMAKING AUTHORITY

The Texas Banking Act previously grants rulemaking authority to the
Finance Commission applicable to trust companies (Article 342-1102, Sec.
1, Vernon's Texas Civil Statutes).  The Texas Trust Company Act (H.B.
1870) grants some of the same rulemaking authority again to the Finance
Commission in addition to granting new rulemaking authority.  Therefore,
it is the committee's opinion that all rulemaking authority granted by
H.B. 1870 is listed below: 

Rulemaking authority is granted to the Finance Commission in SECTION 1,
Chapter 1, Sec. 1.003, to accomplish the purposes of this Act, including
rules necessary or reasonable to: 
 (1)  implement and clarify this Act;
 (2)  preserve or protect the safety and soundness of state trust
companies; 
 (3)  grant the same rights and privileges to state trust companies with
respect to the  exercise of fiduciary powers that are or may be granted to
a state or national bank that is  domiciled in this state and exercising
fiduciary powers; 
 (4)  provide for the recovery of the cost of maintenance and operation of
the department  and the cost of enforcing this Act through the imposition
and collection of ratable and  equitable fees for notices, applications,
and examinations; and 
 (5)  facilitate the fair hearing and adjudication of matters before the
banking    commissioner and the finance commission. 

 
Rulemaking authority is granted to the Finance Commission in SECTION 1,
Chapter 2, Sec. 2.003(b) to: 
 (1)specify the form of the statement of condition and income (of each
state trust    company), including specified confidential and public
information to be in the statement; 
 (2) require public information in the statement to be published at the
times and the  publications and locations the finance commission
determines; 
 (3) require the statement to be filed with the banking commission at the
intervals the  finance commission determines. 

Rulemaking authority is granted to the Finance Commission in SECTION 1,
Chapter 3, Sec. 3.011(e) to adopt rules: 
 (1) defining other circumstances under which a state trust company may be
exempted  from a provision of this Act because it does not transact
business with the public; 
 (2) specifying the provisions of this Act that are subject to an
exemption request; and 
 (3) establishing procedures and requirements for obtaining, maintaining,
or revoking an  exemption. 

Rulemaking authority is granted to the Finance Commission in SECTION 1,
Chapter 8, Sec. 8.009(e) to adopt rules implementing the method or manner
in which a state trust company exercises specific rights and privileges,
including rules regarding the exercise of rights and privileges that would
be prohibited to state trust companies.  The finance commission may not
adopt rules unless it finds that: 
 (1) regulated financial institutions described in Subsection (a) of this
section that are  domiciled in this state possess the rights or privileges
to perform activities the rules  would permit state trust companies to
perform; and 
 (2) the rules contain adequate safeguards and controls, consistent with
safety and    soundness, to address the concern of the legislature
evidenced by the state law the rules  would impact. 

SECTION BY SECTION ANALYSIS

SECTION 1. 

 CHAPTER 1.  General Provisions 

  1.001 (Short Title) provides that the Act may be cited as the Texas
Trust Company Act. 
  
  1.002(a) (Definitions) defines fifty-four terms used throughout the Act.
Some chapters or   sections contain definitions for certain terms or
phrases used exclusively in that Chapter or Section. Some of the most
important are "hazardous condition" [ 1.002(a)(22); "insolvent"
[ 1.002.(a)(25)]; "restricted capital" [ 1.002(a)40]; "secondary capital"
[ 1.002(a) (42); "trust business" [ 1.002(a)(50)]; and "trust deposits"
[ 1.002(a)(51).  

  1.003 (Trust Company Rules) comparable to provisions found in the Texas
Banking Act, provides the finance commission with authority to promulgate
regulations. 

 CHAPTER 2.  Powers and Duties of Texas Department of Banking
  
Subchapter A. Operation of Department

 Unless otherwise noted, Subchapter A contains provisions comparable to
those found in the Texas Banking Act. 

  2.001 (Interpretative Statements and Opinions) permits the Banking
Commissioner to file interpretative statements that contain matters of
general policy for the guidance of state trust   companies with the
Secretary of State. 

  2.002 (Examination) permits the banking commissioner to examine state
trust companies, with the following additions:  subsection (d) permits the
banking commissioner to examine an affiliate of a  state trust company if
the affiliate's activities could materially affect its financial
condition; and subsection (f) requires the banking commissioner to report
the examination results in writing to the officers and directors,
managers, or managing participants of the state trust company. 

  2.003 (Statements of Condition and Income) directs the state trust
companies to submit statements of condition and income. 

  2.004 (Liability Limited) provides an exemption from liability for the
banking commissioner, finance commission members, examiners, and other
employees of the Department in the    performance of official duties
except for acts or omissions which are corrupt or malicious.  


 Subchapter B. Confidentiality of Information 
 
 Comparable to provisions found in the Texas Banking Act, Subchapter B
pertains to   confidentiality of information.   

  2.101 (Disclosure by Department Prohibited) provides that information
pertaining to the financial condition or business affairs of a state trust
company is confidential and may not be   disclosed except as expressly
provided by the Act or rules adopted by the finance commission. 
   
  2.102 (Disclosure To Finance Commission) provides that confidential
information may not be disclosed to a member of the finance commission
unless pertinent to a hearing or pending finance commission matter. 

  2.103 (Disclosure To Other Agencies) permits the banking commissioner to
share confidential information with other state and federal government
agencies and foreign governments if necessary or proper to the enforcement
of law.  

  2.104 (Other Disclosure Prohibited) provides that examination reports in
the state trust   company's possession remain the confidential property of
the Department and may not be disclosed by the company to any person not
officially connected to the company. 

  2.105 (Civil Discovery) provides that discovery of confidential
information from the state trust company or from the Department pursuant
to subpoena or other legal process must comply with  rules adopted by the
finance commission that will restrict release to solely information
relevant to the legal dispute at issue, and will require that a protective
order be issued by a court prior to release of the information. 

  2.106 (Investigative Information) permits the banking commissioner to
refuse release of records in the custody of the Department if release
might jeopardize an ongoing investigation of potentially unlawful
activities. 

  2.107 (Employment Information) permits limited disclosure of employment
information to a state trust company or to a person providing employment
information to a company concerning known or suspected illegalities.   

  2.108 (Shareholder Information Rights) prohibits shareholders and
participants of a state trust company from examining exam reports, books,
records, and other confidential information, which are in the company's
possession. 


CHAPTER 3. Powers; Organization and Organization Changes; Capital and
Surplus 

Subchapter A. Organization Provisions; General Provisions

 Subchapter A contains provisions comparable to those found in the Texas
Banking Act, for organization of state trust companies, including issuance
of a charter, and general corporate activities. Important provisions
include those pertaining to exempt trust companies [  3.011-3.019] which
codify 7 T.A.C.  10.10 and  10.11, the charter application provisions
[ 3.003- 3.006] which codify 7 T.A.C. 15.61(a)],and "restricted capital"
[ 3.007]. 
 
  3.00l (Organization and Powers of State Trust Company) provides express
statutory authority to organize a state trust company and permits it to
perform any act as a fiduciary that a state bank or national bank may
perform in Texas.  Subject to  3.007, a state trust company may exercise
the powers of a Texas business corporation reasonably necessary to
exercise its specific powers under the Texas Trust Company Act.  It may
make contributions to community funds, charitable, philanthropic or
benevolent instrumentalities and under limited circumstances, may deposit
trust funds with itself.   

  3.002 (Articles of Association of State Trust Company)addresses normal
corporate functions such as name, period of duration and powers.
Additionally, it addresses the issuance of share, including par value and
classes of shares, preemptive rights, cumulative voting, organization
provisions, and directors.   

  3.003 (Application for State Trust Company Charter) specifies the
information which must be contained in charter application.  Comparable to
banks, a new requirement has been added for trust companies requiring that
public convenience and advantage  be promoted by the new charter with
consideration of whether a viable market exists within the state that may
be served profitably, including proposed organization and capital
structure, anticipated volume of business, experience, ability, standing
and competence of proposed officers, directors, and shareholders.  The
application must also confirm that the organizers have acted in good
faith.  This section codifies some of the requirements of 7 T.A.C.
 15.6(a), and  15.61(a).   

  3.004 (Notice and Investigation of Charter Application) requires the
banking commissioner to notify the organizers when the application is
complete and to investigate the application and inquire into the identity
and character of each proposed director, manager, officer, managing
participant, and principal shareholder or participant. Except as  provided
by Subchapter B, Chapter  2, financial statements  of proposed officers,
directors, managers or managing  participants are confidential. Organizers
must publish notice of the application.  This section codifies some of the
requirements of 7 T.A.C.  15.6(b), and  15.61(a). 
   
  3.005 (Hearing and Decision on Charter Application) authorizes the
banking commissioner to accept an application protest and determine
whether or not a public hearing will be held.  The banking commissioner
must then enter an order granting or denying the charter and may make the
approval subject to conditions.  This section codifies some of the
requirements of 7 T.A.C.  15.6(c), and  15.61(a). 

  3.006 (Issuance of Charter) prohibits a state trust company from
engaging in the trust business until it receives its charter from the
banking commissioner.  The banking commissioner may not  issue the charter
until the required capital has been paid in cash; the company has elected
or qualified the initial officers and directors or managers and otherwise
complied with all of the requirements of the Texas Trust Company Act.  If
the company does not commence business  within six months of receiving its
charter or conditional approval of its charter application, or any
extended period set by the banking commissioner, the banking commissioner
may revoke the  charter or cancel the conditional application approval. 

  3.007 (Restricted Capital) provides that the banking commissioner may
not issue a charter to a state trust company having restricted capital of
less than $1 million.  The $1 million minimum requirement codifies the
requirements of 7 T.A.C.  10.1(c).  "Restricted capital," is defined in
 1.002(a)(40).  This section also allows the banking commissioner to
increase the minimum restricted capital requirement after making certain
findings with regard to safety and soundness of the institution. Safety
and soundness factors to be considered by the banking commissioner
include: the nature and type of business conducted; the nature and degree
of liquidity in assets  held in a corporate capacity; the amount of
fiduciary assets under management; the type of  discretion undertaken; the
competence and experience of management; the extent and adequacy of
internal controls; the presence or absence of annual unqualified audits by
an independent CPA;  the reasonableness of business plans for retaining or
acquiring additional restricted capital; and the existence and adequacy of
insurance obtained or held by the state trust company for the purpose of
protecting its clients, beneficiaries, and grantors.   

 In the exercise of discretion and safety and soundness considerations,
the banking commissioner may allow a state trust company to reduce its
minimum restricted capital.  This provision codifies the requirements of 7
T.A.C.  10.1(e),(g). 
     
  3.008 (Application of Laws Relating to General Business Corporations)
provides that Texas corporation laws will apply unless inconsistent withe
the Texas Trust Company Act.  Additionally, a state trust company may not
take any action under Texas corporation laws which for another business
corporation would require a filing with the Secretary of State without
first submitting the filing to the banking commissioner. 

  3.009 (Banking Commissioner Hearings) authorizes the banking
commissioner to convene a hearing on any matter for decision.  The hearing
may be conducted by a hearing officer. 

  3.010 (Finance Commission Hearings; Appeals) provides for review by the
finance commission of any adverse decision by the banking commissioner if
the affected party requests. The appeal may affirmatively be taken
directly to the district court in Travis County, Texas, without first
seeking review by the finance commission. 

  3.011 (Exemption) provides for an application process and examination
authority for state trust companies requesting exemption from specified
provisions of the Texas Trust Company Act.  The banking commissioner is
authorized to grant an exemption, subject to certain conditions or
limitations, if the  company does not transact business with the public.
An exempt state trust company may not transact business with the public
unless the banking commissioner determines, as provided by  3.003, that
public convenience and advantage will be promoted.  This section codifies
the requirements of 7 T.A.C.  10.10, and  15.62(a). 

  3.012 (Application for Exemption) specifies the information which must
be contained in a trust company exemption application and the requirements
to maintain exemption status.  Restricts changes of control, authorizes
the banking commissioner to revoke an exemption upon certain grounds, and
specifies the contents of the notification of revocation of exemption.
This section codifies the requirements of 7 T.A.C.  10.10(b), and  15.62. 

  3.013 (Annual Certification) requires exempt state trust companies to
annually certify to the banking commissioner that it is maintaining the
conditions and limitations of its exemption. The certification must be
accepted by the Department.  Also, authorizes the banking commissioner to
investigate as necessary to verify the certification. This section
codifies the requirements of 7 T.A.C.  10.10(c)(1)(B). 

  3.014 (Limitation on Effect of Exemption) requires exempt state trust
companies to comply with the home office provisions of  3.202 and Texas
corporate franchise requirements.  This section codifies the requirements
of 7 T.A.C. 10.10(c)(1)(C), and  15.61(a). 

  3.015 (Change of Control) specifies that control of an exempt state
trust company may not be sold or transferred with exempt status.  If
control is transferred, the acquiring institution must comply with the new
charter requirements ( 3.003-3.005;  4.001) and file a separate
application  to obtain an exemption.  This section codifies the
requirements of 7 T.A.C.  10.10(d), and  10.56(a),(c), which eliminates
the possibility that a new active trust company (public) can be created
upon a change of control of an exempt trust company since exempt status
does not transfer with the charter. 
 
  3.016 (Grounds for Revocation of Exemption) authorizes the banking
commissioner to revoke an exemption upon specified grounds.  This section
codifies the requirements of 7 T.A.C.    10.11(b).  

  3.017 (Notice and Effect of Revocation of Exemption) authorizes the
banking commissioner to revoke an exemption if it determines that the
exempt state trust company has violated any of the requirements of this
Subchapter.  The revocation is effective unless the company requests a
hearing before the effective date, which may not be before the fifth day
after a notice of revocation is mailed or delivered.  This section
codifies the requirements of 7 T.A.C.  10.11(c). 

  3.018 (Action After Revocation) provides an exempt state trust company
five days to comply with the requirements of Sections  3.003(b) and (c).
This compliance period may be waived by the banking commissioner if it is
determined that the company has been engaging in acts to defraud  the
public.  If compliance is not made, the banking commissioner may institute
any lawful action or refer the company to the attorney general for
institution of a quo warranto proceeding.  This section codifies  the
requirements of 7 T.A.C.  10.11(d), (e). 

  3.019 (Prior Exemption) provides that a state trust company exempt under
a predecessor statute is considered exempt under the Texas Trust Company
Act.  
 
  3.020 (Trust Companies Chartered Under Prior Law) Voids pre-May 25, 1987
trust company charters unless presented to the Department before May 26,
1988, for substitution of a charter of if the Department did not issue a
new substitution charter before May 26, 1989.  This is a transitional
section designed to bring trust companies chartered under prior law in
conformance with the Texas Trust Company Act.  

  3.021 (Foreign Corporations Exercising Trust Powers) authorizes a
foreign corporation to conduct trust business in Texas through control of
a Texas state trust company which is formed or acquired and operated as
provided by the Texas Trust Company Act and applicable rules.  A foreign
corporation or other entity chartered or domiciled in another state as a
trust company or depository institution with trust powers may act as a
trustee in Texas only as provided in Section 105A, Texas Probate Code. 
 
  3.022 (Activities Not Requiring A Charter) enumerates activities which
do not constitute engaging in trust business which would require a
charter. 
 

Subchapter B. Amendment of Articles; Changes in Capital and Surplus

 Comparable to provisions found in the Texas Banking Act, Subchapter B
contains general corporate provisions pertaining to amendment of articles
of association, establishing a series of shares or participation shares,
and changes in capital and surplus. 
  
  3.101 (Amendment or Restatement of State Trust Company Articles of
Association) permits a state trust company to amend or restate its
articles of association for any lawful purpose.  Any   amendments must be
submitted to the banking commissioner prior to filing with the Secretary
of State.  
 
  3.102 (Establishing Series of Shares or Participation Shares) permits a
state trust company, if allowed by the articles of association, authority
to establish series of shares and to determine the preferences,
limitations, and relative rights of each series.  Any filings to be made
with the Secretary of State must first be filed with and approved by the
banking commissioner. 
 
  3.103 (Change in Restricted Capital) provides that a state trust company
may not reduce or increase its restricted capital through dividend,
redemption or issuance of shares, without the prior approval of the
banking commissioner.  Certain increases in restricted capital as
enumerated in this Section, unless restricted, do not require the approval
of the banking commissioner.  Also, prior approval is not required for a
decrease in restricted capital caused by losses incurred in excess of
undivided profits.     

  3.104 (Capital Notes or Debentures) with the prior approval of the
banking commissioner, a state trust company board may authorize the
issuance and sale of its capital notes or debentures which must be
subordinate to the claims of depositories and may be subordinate to other
claims, including the claims of other creditors or classes of creditors or
the shareholders or participation shares of any class or series.  However,
without the prior written approval of the banking commissioner, interest
due or principal payable on outstanding capital notes or debentures may
not be paid by a state trust company when it is in financial difficulty or
insolvent, as determined by the  banking commissioner, or to the extent
that payment will create financial difficulty or insolvency. Finally, the
amount of any outstanding capital notes or debentures that meet the
requirements of this Section and are subordinated to unsecured creditors
may be included in equity capital for the purposes of determining
financial difficulty or insolvency.   

  3.105 (Board Designation of Certified Surplus) authorizes a Board to
periodically designate and record the amount of certified surplus in its
minutes.  Except to absorb losses in excess of undivided profits and
uncertified surplus, any reductions require prior written banking
commissioner approval. This section codifies the requirements  of 7 T.A.C.
 10.1(a)(3)(A)(ii)(III).  
  

 Subchapter C. State Trust Company Offices

 Comparable to provisions found in the Texas Banking Act, Subchapter C
describes the various types of offices a state trust company may utilize. 

  3.201 (Conduct of the Trust Business) provides that a state trust
company may engage in trust business at its home office and at other
locations permitted by this Subchapter. 

  3.202 (Home Office) provides that a state trust company must maintain a
home office in Texas at which it does business and keeps its corporate
books and records. Each officer at the home office is an agent for service
of process.  The home office location may be changed upon notice to the
banking commissioner.  The change is effective 31 days after notice. A
proposed relocation of the state trust company's home office or another
action that would effect an abandonment of the home office may not be made
without the prior written approval of the banking commissioner.  This
section codifies some of the requirements of 7 T.A.C.  10.2, and  15.61. 

  3.203 (Additional Offices) permits a state trust company to establish
additional offices anywhere in Texas with the banking commissioner's prior
written approval.  Approval will be granted if the banking commissioner
has no supervisory or regulatory concerns regarding the proposed
additional office. 


Subchapter D. Merger Authority

 Comparable to provisions found in the Texas Banking Act, Subchapter D
provides specific procedures for mergers of state trust companies. 

  3.301 (Merger Authority) with the prior written approval of the banking
commissioner, a state trust company may merge to the same extent as a
business corporation under the Texas Business Corporation Act, subject to
provisions of this Subchapter, and applicable rules. 

  3.302 (Merger Application; Grounds for Approval) specifies the
information which must be contained in the merger application and the
criteria to be considered by the banking commissioner in determining
whether to approve the merger application.  

  3.303 (Approval of Banking Commissioner) specifies the banking
commissioner's responsibilities when it approves a merger application and
provides that a merger is effective on the date of approval, unless the
merger agreement provides and the banking commissioner consents to a
different effective date. 

  3.304 (Rights of Dissenters to Merger) provides that a shareholder,
participant, or participanttransferee may dissent from the merger to the
extent allowed by the Texas Business Corporation Act and applicable rules. 


 Subchapter E. Purchase or Sale of Assets

 Comparable to provisions found in the Texas Banking Act,  Subchapter E
describes the procedures and responsibilities for the sale or purchase of
the assets of another regulated financial institution by a state trust
company. 

  3.401 (Authority to Purchase Assets of Another Trust Company) with the
prior written approval of the banking commissioner, a state trust company
may purchase all or substantially all of the assets of another regulated
financial institution.  Also, specifies the information which must be
contained in the merger application. 

  3.402 (Authority to Act as Disbursing Agent) permits the purchasing
state trust company to hold the purchase price and any additional funds
delivered to it by the selling institution in trust and as agent of the
selling institution in disbursing those funds in trust by paying the
creditors of the selling  institution. 

  3.403 (Liquidation of Selling Institution) provides that if the selling
institution is subsequently closed for liquidation by a state or federal
regulatory agency, the purchasing trust company shall pay to the receiver
the balance of the funds held by it in trust for the selling institution. 

  3.404 (Payment to Creditors) permits the purchasing trust company to pay
creditors of the selling institution under the terms of an agency
contract. 


  3.405 (Sale of Assets) authorizes the board of a state trust company,
with the banking commissioner's approval, to sell all or substantially all
of its assets without shareholder or participant approval because of its
hazardous condition. The purchasing institution must pay or otherwise
discharge all of the obligations and liabilities of the selling
institution and the banking commissioner. 


 Subchapter F. State Trust Regulatory System: Exit of State Trust Company

  3.501 (Merger, Reorganization, or Conversion of State Trust Company Into
National Bank Exercising Fiduciary Powers) authorizes a state trust
company to merge, reorganize, or convert into a national bank authorized
solely to exercise fiduciary powers. The board, shareholders or
participants must approve the proposed action and a required notice of the
proposed transaction must published. The banking commissioner must be
given written notice before the 31st day preceding the date of the
proposed transaction. The banking commissioner must determine the
following: all accounts and liabilities of the state trust company are
fully discharged, assumed, or otherwise retained by the successor national
bank exercising fiduciary powers; any conditions imposed by the banking
commissioner for protection of clients and creditors have been met or
resolved; and any required filing fees have been paid.       


CHAPTER 4. Shares and Participation Shares; Shareholders and Participants;
Management 

Subchapter A. Transfer of Ownership Interests In State Trust Company

 Subchapter A codifies the requirements of 7 T.A.C.  3.61 governing
change of control of a state trust company, and, contains comparable
provisions to those found in the Texas Banking Act. 

  4.001 (Acquisition of Control) generally requires a person to obtain the
prior written approval of the banking commissioner prior to acquiring
control of a state trust company. 

  4.002 (Application Regarding Acquisition of Control) specifies the
information which must be contained in the change of control application.
Notice of the application must be published.  

  4.003 (Hearing and Decision on Acquisition of Control) provides that the
banking commissioner must approve the application or set the application
for hearing within 60 days after the notice is published.  Also, describes
the criteria for approval and the procedure for requesting a hearing by
the banking commissioner. 

  4.004 (Appeal From Adverse Decision) provides that an appeal to the
district court in Travis County, Texas, is subject to the substantial
evidence rule if the change of control application is denied. 

  4.005 (Objection to Other Transfer) provides that the banking
commissioner has the authority to investigate, comment on, or seek to
enjoin or set aside a transfer of voting securities that evidence a direct
or indirect interest in a state trust company, if the banking commissioner
considers the transfer to be against the public interest. 

  4.006 (Civil Enforcement; Criminal Penalties) authorizes the banking
commissioner to seek to enjoin any action which is in violation of this
Subchapter.  Also, provides that a person who knowingly fails or refuses
to file the application required by  4.002 commits a Class A misdemeanor
offense. 

 
Subchapter B. Board and Officers

 With the exception of  4.101, Subchapter B contains provisions comparable
to those found in the Texas Banking Act, which set forth the requirements
for election of management and the election and the duties and other
responsibilities of management.       
  
 4.101 (Voting Securities Held By Trust Company) restricts
voting securities held in a fiduciary capacity by a state trust company
unless the following requirements are met: the will or trust specify that
the donor or beneficiary may determine the manner in which the voting
securities are to be voted and the donor or beneficiary makes the
determination; the will or trust expressly provide the manner in which the
securities must be voted so that the state trust company as fiduciary has
no discretion; and the securities are voted solely by a cofiduciary that
is not an affiliate of the state trust company. 

  4.102 (Bylaws) requires that each state trust company adopt bylaws in
accordance with the Texas Business Corporation Act.  Limited trust
associations in which management is retained by the participants are not
required to adopt bylaws if provisions required by law to be contained in
the bylaws are contained in the articles of association or the
participation agreement.  If a limited trust association has adopted
bylaws which designate each full liability participant, the limited trust
association shall file with the banking commissioner a copy of the bylaws. 

  4.103 (Board of Directors, Managers, or Managing Participants) describes
the board of directors and its responsibilities and adds a
disqualification ( 4.103(b)(3)) for a person proposed as a director if
that person has violated Sections 113.052 or 113.053(a) of the Texas
Probate Code relating to loans of trust funds and purchase or sale of
trust property by a trustee, if the violation(s) have not been corrected.
Thus, a director that is a party to a breach of trust under these probate
sections and who is unwilling or unable to cure the breach, would not be
able to serve as director.  

  4.104 (Required Board Meeting) requires at least one regular meeting
each quarter and that all actions be recorded in its minutes. 

  4.105 (Officers) designates the required officers by function rather
than title. 

  4.106 (Certain Criminal Offenses) provides that the concealment of
information or a fact, or removal, destruction, or concealment of a book
or record of the state trust company by an officer, director, manager,
managing participant, employee, shareholder, or participant ("insider"),
constitutes a third degree felony. 

  4.107 (Transactions with Management and Affiliates) requires prior
written approval of the banking commissioner of certain sale or lease
transactions involving insiders. Also, requires that loans to an insider
be made on substantially the same terms, as those for comparable
transactions with noninsiders, that the loans must not involve more than
the normal risk of repayment or present other unfavorable features, and
that the state trust company must follow credit underwriting procedures
that are not less stringent than those applicable to comparable
transactions with non-insiders.   

  4.108 (Fiduciary Responsibility) specifies that the Board of a state
trust company is responsible for the proper exercise of fiduciary powers. 

  4.109 (Recordkeeping) requires that a state trust company keep its
fiduciary records separate and distinct from other records of the state
trust company. 

  4.110 (Bonding Requirements) requires that all directors, managers,
managing participants, officers, and employees of a state trust company be
bonded, with corporate insurance or surety companies, for acts involving
dishonesty, fraud, defalcation, forgery, and theft. 

  4.111 (Reports of Apparent Crime) requires that a state trust company
which is the victim of a robbery, a shortage of corporate or fiduciary
funds in excess of $5,000, or misapplication of funds by an insider, file
a report with the banking commissioner, within 48 hours of discovery. 


Subchapter C. Special Provisions For Limited Trust Associations
 
 Comparable to provisions found in the Texas Banking Act, Subchapter C
contains special provisions for limited banking associations. 

  4.201 (Filing of Notice of Full Liability) requires filing of a copy of
the participation agreement with the banking commissioner. 

  4.202 (Liability of Participants and Managers) generally exempts
participants, other than a full liability participant, and managers of a
limited trust association, for debts of the limited trust association.  

  4.203 (Contracting Debts and Obligations) provides that debts and
obligations may be contracted for or incurred by a majority of the
managers with management authority, a majority of the managing
participants, or an authorized officer or other agent.   

  4.204 (Management of Limited Trust Association) provides that management
is generally vested in the participants, except that in certain
circumstances, it management will be vested in an elected board of
managers. 

  4.205 (Withdrawal or Reduction of Participant's Contribution to Capital)
limits return of a participant's capital contribution to certain
situations. 

  4.206 (Interest in Limited Trust Association; Transferability of
Interest) provides that a participant's interest or participant-transferee
is their personal estate and may be transferred as provided in the bylaws
of the participation agreement. 

  4.207 (Dissolution) specifies events of dissolution.

  4.208 (Allocation of Profits and Losses) provides that, subject to
 3.103, distributions (cash or other assets) to participants may be made
as provided by the participation agreement. 

  4.209 (Distributions) provides that profits and losses may be allocated
among the participants as provided by the participation agreement. 

  4.210 (Other Provisions Related to Limited Trust Associations) provides
that for purposes of the provisions of the Texas Trust Company Act: a
manager/ board of managers, or a participant, if no board of managers
exists, are considered to be a director and board of directors; a
participant is considered to be a shareholder; a participation share is
considered a share of stock; and a distribution is considered a dividend. 


 CHAPTER 5. Investments, Loans, and Deposits

 Except as otherwise noted, Chapter 5 contains provisions comparable to
those found in the Texas Banking Act pertaining generally to investments,
loans, and deposits of state trust companies.  New and important
provisions pertain to restricted capital investments [ 3.007;  5.001;
 5.101;  5.104; and  5.201]; secondary capital investments [ 5.101,
 5.103; and  5.301]; trust deposits [ 5.401]; and the prudent judgment
rule in connection with secondary capital investments. Subchapter F.,
"Liabilities and Pledge of Assets," mirrors existing law under Chapter XI
of the Texas Banking Code.    
  
Subchapter A. Acquisition and Ownership of State Trust Company Facilities
and Other Real Estate   

  5.001 (Investment in State Trust Company Facilities) requires the prior
written approval of the banking commissioner before a state trust company
may not directly or indirectly invest in facilities, furniture, fixture
and equipment in excess of 60% of its restricted capital.  Further
provides specific provisions for computing this limitation.  Real estate
acquired for future expansion and not improved and occupied within three
years of the date of acquisition ceases to be trust company facilities
unless approved by the banking commissioner. 

 State trust companies are required to comply with generally accounting
principles, consistently applied, in accounting for investments in and
depreciation of state trust company facilities, furniture,  fixtures and
equipment. 

 Subchapter B. State Trust Company Investments

  5.101 (Securities) provides that a state trust company may invest its
corporate funds in any type or character of equity or investment
securities subject to the limitations contained therein.  Generally, a
state trust company must invest and maintain an amount equal to at least
40% of its restricted capital in investment securities that are readily
marketable and can be converted to cash within four business day.
Investments in equity and investment securities in any one issuer,
obligator, or maker, held by the trust company for its account may not
exceed an amount equal to 15% of restricted capital.  Without limitation
and subject only to the exercise of prudent judgment, a state trust
company may invest for its own account in bonds or other general
obligations of a state, agency, or political subdivision of a state, the
United States, or an agency or instrumentality of the United States (and
other enumerated investments).  This section codifies some of the
requirements of 7 T.A.C.  10.5. 

 Provides that in the exercise of prudent judgment, a state trust company
must, at a minimum: exercise care and caution to make and implement
investment and management decisions, taking into consideration safety and
soundness; pursue an overall investment strategy to enable management to
make appropriate present and future decisions; and consider the size,
diversification and liquidity of its corporate assets, the general
economic conditions, the possible effect of inflation or deflation, the
expected tax consequences of the investment decisions or strategies, the
role each investment or course of action plays within the investment
portfolio, and the expected total return of the portfolio.  

 Provides that a state trust company may invest its secondary capital in
any type or character of equity or investment securities subject to the
exercise of prudent judgment. 

  5.102 (Transactions in State Trust Company Shares or Participation
Shares) generally provides that without prior written approval of the
banking commissioner, a state trust company may not acquire its own shares
or participation shares.   
 
  5.103 (Subsidiaries) provides that, subject to the exercise of prudent
judgment, a state trust company may invest its secondary capital to
acquire one or more subsidiaries to conduct any activity that may lawfully
be conducted through the formal organization chosen for the subsidiary.
Investments in a subsidiary require 30 days notice to the banking
commissioner.  Trust company subsidiaries are subject to regulation by the
banking commissioner. 

  5.104 (Other Real Estate) provides that except as provided in  5.001, a
state trust company may not invest its restricted capital in real estate
unless necessary to avoid or minimize a loss on a loan or investment
previously made in good faith.  Generally, other real estate acquired must
be disposed of within statutorily defined periods of time varying with the
nature of the property. The banking commissioner may grant one or more
extensions of time if it is determined that the state trust company has
made a good faith effort to dispose of the property or disposal would be
detrimental to the company. 

 Subject to the exercise of prudent judgment, a state trust company may
invest its secondary capital in real estate.  
    




 Subchapter C. Loans

  5.201(Lending Limits) provides that loans to one debtor may not exceed
15% of the state trust company's restricted capital. The aggregate of
loans to insiders must not exceed 15% of restricted capital.  Also, loans
to an insider must be on terms and under circumstances, including credit
standards, that are substantially the same as those for a non-insider.
Officers, directors, managers, managing participants, or employees with
the state trust company who approve or participate in the approval of a
loan with actual knowledge that it violates this Section are held jointly
and severally liable to the state trust company for the lesser of the
amount by which the loan exceeded applicable lending limits or the
company's actual loss.  They remain liable for that amount of the loan and
all prior indebtedness of the borrower until the company has been fully
repaid. 
 
 Subchapter C does specifies that it does not confer general banking
privileges on state trust companies. 

  5.202 (Lease Financing Transactions) provides that a state trust company
may become the owner an lessor of tangible personal property for lease
financing transacting on a net lease basis on the specific request and for
the use of a client.  Without the written approval of the banking
commissioner, a state trust company may not hold the property for more
than six months. Rental payments received are considered to be rent and
not interest or compensation for use, forbearance or detention of money.
However, for the purpose of lending limits, lease transaction is
considered a loan. 


 Subchapter D. Other Investment Provisions
 
  5.301. (Other Investment Provisions) provides that without the prior
written approval of the banking commissioner, a state trust company may
not make any investment of its secondary capital in any investment that
incurs or may incur, under regulatory accounting principles, a liability
or contingent liability. Also, permits the banking commissioner to require
a state trust company to dispose of any secondary capital investment if it
is determined that divestiture of the asset is necessary to protect safety
and soundness. Unless a state trust company appeals before the effective
date of the proposed divestiture order, the order becomes final and
nonappealable.   

 Subject to this Section,  5.302, and in the exercise of prudent judgment,
a state trust company may invest its secondary capital in any type or
character of investment for the purpose of generating income or profit.
          
  5.302 (Engaging in Commerce Prohibited) generally prohibits a state
trust company from investing its funds in trade or commerce by buying,
selling or otherwise dealing in goods or by owning or operating a business
not part of the state trust company business, except as necessary to
fulfill a fiduciary obligation to the client. 


 Subchapter E. Trust Deposits

  5.401 (Trust Deposits) this new section allows a state trust company to
deposit trust funds with itself as an investment if authorized by the
settlor or the beneficiary provided it maintains the security for the
deposit required by this Section.  Security for a deposit under this
Section is not required to the extent the deposit is insured by the FDIC.
This section does not confer general banking privileges.  The deposits are
investments made on behalf of clients.  Solely the trust company will be
able to move funds in and out of the deposit account, and these
transactions will generally be made according to the terms of a contract
or court order.  


 Subchapter F. Liabilities and Pledge of Assets

  5.401 (Borrowering Limit) provides that except with the prior written
approval of the banking commissioner, a state trust company may not have
outstanding liabilities which exceed an amount equal to five times its
restricted capital. 

  5.402 (Pledge of Assets) provides that, with limited exceptions, a state
trust company may not pledge or create a lien on any of its assets. 


 CHAPTER 6. Enforcement Actions

 Comparable to provisions contained in the Texas Banking Act, Chapter 6
pertains to enforcement actions for state trust companies  including
"unauthorized activity" as defined in  1.002(a)(52), and contains
provisions regarding supervision and conservatorship.  Subchapter C,
"Unauthorized Activity," also contains comparable  provisions to those
found in the Texas Insurance Code. 


 Subchapter A. Enforcement Orders; State Trust Company and Management
 
  6.001 (Determination Letter) authorizes the banking commissioner to
issue a letter notifying a state trust company that it is in a condition
that may warrant an enforcement order unless certain requirements are
satisfied. 


  6.002 (Cease and Desist Order) authorizes the banking commissioner to
issue a cease and desist order if certain specified conditions exist.  The
order is final and nonappealable if it is not appealed before its
effective date, which may not be before the 21st day after the date the
proposed order is mailed or delivered. 

  6.003 (Removal or Prohibition Order) authorizes the banking commissioner
to remove a present or former officer, director, manager, managing
participant, or employee of a state trust company from office or
employment in, or prohibit a controlling shareholder or participant or
other person participating in the affairs of a state trust company from
further participation in the affairs of, a state trust company, state
banks, or other entity chartered by the banking commissioner, if certain
specified wrongdoing has occurred. 

  6.004 (Hearing on Proposed Order) provides that a requested hearing on a
proposed order must be held not later than the 30th day after the date the
first hearing request is received, unless the parties agree to a later
hearing date.  Written notice of the hearing shall be given. 

  6.005 (Emergency Orders) authorizes the banking commissioner to issue
emergency cease and desist, removal, or prohibition orders if the banking
commissioner believes that immediate action is needed to prevent immediate
and irreparable harm.  Emergency orders are effective immediately on
service without prior notice and hearing.  A hearing must be requested in
writing not later than the 10th day after the date the order is served, or
the emergency order is final and nonappealable.  A hearing must be held
not later than the 20th day after the date that it is requested unless the
parties agree to a later hearing date.  After the hearing, the banking
commissioner may affirm, modify, or set aside in whole or part the
emergency order. 

  6.006 (Copy of Letter or Order in State Trust Company Records) requires
that a copy of any order issued by the banking commissioner under this
Subchapter be immediately brought to the attention of the board of the
state trust company and filed in the board's minutes.  Also, requires each
director, manager, or managing participant to certify to the banking
commissioner in writing that they have read and understand the order. 

  6.007 (Effect of Final Removal or Prohibition Order) provides that
without the prior written approval of the banking commissioner, a person
subject to final removal or prohibition order is banned from working for
state trust companies or banks under the jurisdiction of the banking
commissioner and may exercise voting rights in such an entity . 

  6.008 (Limitation on Action) establishes a five year limitations period
for enforcement actions under this Subchapter.       

  6.009 (Enforcement of Final Order) provides that if the banking
commissioner reasonably believes that a final order has been violated, the
banking commissioner may: initiate administrative penalty proceedings;
refer the matter to the attorney general for enforcement;  
or pursue any action the banking commissioner considers appropriate under
applicable law.    

  6.010 (Administrative Penalties) authorizes the banking commissioner to
initiate a proceeding for an administrative penalty (not to exceed $500
for each day of the violation) against a state trust company.  The hearing
may not be held earlier than the 20th day after the date the notice is
served. 

  6.011 (Payment or Appeal of Administrative Penalty) requires a state
trust company to pay a penalty under a final order or appeal to the
district court of Travis County, Texas.  If a state trust company does not
pay or appeal, the banking commissioner must refer the matter to the
attorney general for enforcement. 

  6.012 (Confidentiality of Records) provides that copies of the
Department's records relating to enforcement actions are confidential,
except that final removal and prohibition orders must be published by the
banking commissioner, and final cease and desist orders may be published
by the banking  commissioner if effective enforcement of the order would
be enhanced by the release. 

  6.013 (Collection of Fees) authorizes the banking commissioner to bring
a lawsuit to collect unpaid fees owed to the state. 


 Subchapter B. Supervision and Conservatorship

  6.101 (Order of Supervision) authorizes the banking   commissioner to
appoint a supervisor, without prior notice, if a state trust company is in
hazardous condition and an order of supervision appears to be necessary
and in the best interest of the state trust company and its clients,
creditors, shareholders or participants, or the public.  

  6.102 (Order of Conservatorship) in addition to  4.103 and  6.104,
authorizes the banking commissioner to appoint a conservator, without
prior notice, if a state trust company is in hazardous condition and
immediate and irreparable harm is threatened.  

  6.103 (Hearing) provides that a state trust company may request in
writing a hearing if a state trust company seeks to contest or modify an
order issued under  6.101 or  6.102, or demonstrate that it has satisfied
all requirements for abatement of the order.      


  6.104 (Post-hearing Order) permits the banking commissioner, after
hearing, to release a state trust company from supervision or
conservatorship if the state trust company has been rehabilitated, its
hazardous condition has been remedied, irreparable harm is no longer
threatened.  If the banking commissioner finds, after hearing, that the
state trust company is not in compliance with its lawful requirements, the
banking commissioner may reappoint the supervisor or conservator, or take
other appropriate action authorized by law. 

  6.105 (Confidentiality of Records) provides that the order and other
Department records relating to the order are confidential.  The banking
commissioner may release an order or information regarding the order if it
is determined that effective enforcement of the order would be enhanced. 

  6.106 (Duties of State Trust Company Under Supervision) limits the state
trust company from taking specified actions during the conservatorship
without the prior approval of the banking commissioner or supervisor, or
as otherwise permitted or restricted by the order. The supervision of the
acceptance of new accounts for trust companies under supervision is
comparable to the supervision of the lending and investment activities for
a bank in a hazardous condition. 
 
  6.107 (Powers and Duties of Conservator) authorizes a conservator to
take possession of all of the property, records, and affairs of a state
trust company.  Also, specifies the powers possessed by a conservator. 

  6.108 (Qualifications of Appointee) provides that the banking
commissioner may appoint any person as supervisor or conservator who in
the sole judgement of the banking commissioner, qualified to serve. 

  6.109 (Expenses) provides that the banking commissioner shall determine
and approve all reasonable expenses of a supervisor or conservator.  The
expenses are to be paid by the state trust company. 

  6.110 (Review of Supervisor or Conservator Decisions) permits a majority
of a state trust company's board to request in writing that the banking
commissioner review an action taken or proposed by the supervisor or
conservator. After investigation, the banking commissioner makes a written
ruling. The board may object to the written ruling and obtain a hearing
before the banking commissioner.  A final order issued after the hearing
is appealable to the finance commission. 

  6.111 (Venue) provides that suits relating to a state trust company in
conservatorship be filed in Travis County, Texas, or another jurisdiction
if appropriate under law.  


   6.112 (Duration) provides that a supervisor or conservator will serve
as long as necessary to accomplish the purposes of the supervision or
conservatorship. 

  6.113 (Administrative Election of Remedies) authorizes the banking
commissioner to take any action under Chapter 7 regardless of the
existence of supervision and conservatorship. 


Subchapter C.  Unauthorized Trust Activity: Investigation and Enforcement
 
  6.201 (Investigation of Unauthorized Trust Activity) authorizes the
banking commissioner to investigate, initiate disciplinary action, and
report to a law enforcement agency or regulatory agency, any unauthorized
activity.       
 
  6.202 (Unauthorized Use of "Trust" and Similar Words) provides that
prior written approval of the banking commissioner is required for a
person or company (other than another financial institution) to utilize in
its name the word "trust," or any other term that tends to imply the
business is holding out to the public as engaged in the business of a
fiduciary for hire.  Excludes banks, savings and loan associations,
savings banks, and credit unions.  This section codifies the requirements
of 7 T.A.C.  10.4. 

  6.203 (Subpoena Authority) authorizes the banking commissioner to
investigate and compel testimony regarding unauthorized activity with
state-wide subpoena power.  Witness fees are also authorized. 

  6.204 (Enforcement of Subpoena) provides that subpoenas may be enforced
in Travis County, Texas. 

  6.205 (Confidentiality of Subpoenaed Records) provides that subpoenaed
records which are privileged or confidential remain privileged or
confidential unless admitted into evidence at hearing or in court, or
lawfully subpoenaed. 

  6.206 (Evidence) provides that upon certification by the banking
commissioner, subpoenaed records and testimony are admissible as evidence
in any case. 

  6.207 (Cease and Desist Order Regarding Unauthorized Trust Activity)
authorizes the banking commissioner to issue a proposed cease and desist
order regarding unauthorized activity which becomes final unless appealed
before the effective date, which shall not be less than 21 days after the
date the proposed order is mailed or delivered.  A requested hearing must
be held within 30 days from the written request, unless the parties agree
to a later date.  Also, authorizes the banking commissioner to release a
final order if it is determined that the effective enforcement of the
order will be enhanced by its release or the public interest will be
served. 

  6.208 (Emergency Cease and Desist Order Regarding Unauthorized Trust
Activity) authorizes the banking commissioner to issue an emergency cease
and desist if it is reasonably believed that a person is engaged in a
continuing unauthorized trust activity that is fraudulent or threatens
immediate and irreparable public harm. A hearing must be requested in
writing within 10 days of receipt of the emergency order.  A hearing must
be held within 10 days of receipt of the request.  The banking
commissioner may affirm, modify, or set aside in whole or in part the
emergency order.     

  6.209 (Appeal of Cease and Desist Order Regarding Unauthorized Activity)
provides that final cease and desist orders are appealable to the district
court of Travis County, Texas. 

  6.210 (Violation of Final Cease and Desist Order Regarding Unauthorized
Trust Activity) authorizes the banking commissioner to initiate
administrative penalty proceedings, refer the matter to the attorney
general for enforcement, or pursue any other action appropriate under
applicable law, if the banking commissioner reasonably believes that a
person has violated a final cease and desist order. 

  6.211 (Penalty Order for Unauthorized Activity) specifies  procedures
for hearings to seek an administrative penalty for violation of a final
cease and desist order. Enumerates factors to be considered by the banking
commissioner in determining the amount of penalty and whether to impose
restitution. 

   6.212 (Payment and Appeal of Penalty Order) specifies the applicable
time frames for a person affected by a penalty order to pay the penalty
and/or file a petition for judicial review of the penalty order. 

  6.213 (Judicial Review of Penalty Order) specifies the procedures for a
person seeking judicial review of a penalty order. 

  6.214 (Deposit to General Revenue Fund) provides that a penalty
collected under this Subchapter must be deposited in the general revenue
fund.    


 CHAPTER 7.  Dissolution and Receivership

 Subchapter A. General Provisions

 Subchapter A contains comparable  provisions to those found in the Texas
Banking Act and the Texas Insurance Code, relating to the exclusive nature
of the banking commissioner to liquidate a state trust company, the role
of the FDIC in liquidations, and the succession of trust powers by
operation of law. 

  7.001 (Definition) defines "administrative expense" as used in this
Chapter. 

  7.002 (Remedies Exclusive) provides that the banking commissioner has
the exclusive right to seek the closing of a state trust company, or
appointment of a receiver, supervisor, conservator, or liquidator. 

  7.003 (Appointment of Independent Receiver) permits the banking
commissioner to request a court in which a liquidation proceeding is
pending, to appoint an independent receiver. 

  7.004 (Federal Deposit Insurance Corporation as Liquidator) authorizes
the banking commissioner, without court action, to tender a state trust
company that has been closed for liquidation to the FDIC.  The FDIC may
act as receiver under applicable federal law. 

  7.005 (Succession of Trust Powers) provides for the automatic transfer
of fiduciary rights, duties, and obligations to a successor institution. 


 Subchapter B. Voluntary Dissolution
 
 Subchapter B contains provisions comparable to found in the Texas Banking
Act and the Texas Insurance Code, which describe the procedures for a
voluntary liquidation of a state trust company.  

  7.101 (Approvals Required for Voluntary Dissolution) requires banking
commissioner approval and corporate action by the board of directors and
shareholders in accordance with the Texas Business Corporation Act for a
state trust company to initiate voluntary dissolution and surrender its
charter.  

  7.102 (Notice of Voluntary Dissolution) requires that a notice of
voluntary dissolution be published by a state trust company after its has
submitted required documentation and obtained the approval of the banking
commissioner.  Also, requires the dissolving state trust company to give
notice to its known clients, depositors, creditors, and bailors. 

  7.103 (Safe Deposits and Other Bailments) provides a mechanism for the
disposition of unclaimed personal property that will ultimately be
transferred to the comptroller as unclaimed property. 

  7.104 (Fiduciary Activities) provides for the termination of all
fiduciary accounts with appropriate notice to the trustor and
beneficiaries, and maintenance of one office where fiduciary
administration will continue until disposition is complete. 

  7.105 (Final Liquidation) requires a liquidating state trust company to
file with the banking commissioner a list containing the names of each
person owning unclaimed cash or property.  Also,  requires the state trust
company to pay any unclaimed funds to the comptroller.  After the banking
commissioner has reviewed the list and reconciled the unclaimed cash and
property with the amounts transferred to the comptroller, the banking
commissioner will allow the state trust company to distribute the
company's remaining assets, if any, to its shareholders, participants, or
participant-transferees.  After the state trust company submits required
documentation, the banking commissioner will issue a certificate canceling
the charter.  

  7.106 (Administrative Authority; Election of Remedies) subjects all
liquidating banks to the continued regulation and examination of the
Department until the voluntary liquidation is complete. 


 Subchapter C. Involuntary Dissolution and Liquidation
 
 Comparable to provisions contained in the Texas Banking Act and the Texas
Insurance Code, Subchapter C provides steps for involuntary dissolution
and liquidation of a state trust company. 

  7.201 (Action to Close State Trust Company) authorizes the banking
commissioner to close an liquidate a state trust company if the company
based on insolvency and if in the best interests of clients and creditors. 

  7.202 (Involuntary Closing) authorizes the banking commissioner to
tender the state trust company to the FDIC as provided by Section 7.003 or
initiate a receivership proceeding in a district court in the county where
the company's home office is located. 

  7.203 (Nature and Duration of Receivership) permits the banking
commissioner to act as receiver without bond when closing a state trust
company and limits the liability of the receiver and the employees and
agents while acting in an official capacity.  The receiver has all
necessary authority to undertake any act required for the proper
dissolution and liquidation of the state trust company.  Also, allows for
the liquidation to continue for as long as necessary for an orderly
liquidation to be completed. 

  7.204 (Contest of Liquidation) allows a state trust company, acting
through a majority of its directors, managers, or managing participants,
to intervene and challenge the banking commissioner's closing and attempt
to enjoin liquidation of its assets.  The intervention must be filed not
later than the second day after the closing. 

  7.205 (Notice of State Trust Company Closing) requires the receiver to
publish notice of the closing and liquidation and to provide procedures
for clients, creditors, and bailors to file claims. Thereafter, the
receiver must mail individual notices. 

  7.206 (Inventory) requires the receiver to prepare a comprehensive
inventory of the state trust company's assets for filing with the court. 

  7.207 (Title in Receiver) transfers title to all property of the state
trust company to the banking commissioner as of the date the company is
closed and also provides that a lien filed or arising after the date of
the closing will be inferior to the claim by the company. 

  7.208 (Rights Fixed) generally fixes the rights and liabilities of
everyone as of the date of closing. 

  7.209 (Depositories) allows the receiver to deposit money of the
liquidating estate into the Texas Treasury Safekeeping Trust Company and
in any federally insured depository institution in Texas.  Any funds on
deposit at a financial institution in excess of deposit insurance must be
secured.    

  7.210 (Pending Lawsuits) stays all pending lawsuits against the state
trust company being liquidated.  Also, provides that the receiver is not
required to plead in any of the existing lawsuits until one year after the
date of closing. 

  7.211 (New Lawsuits) gives the district court in which the receivership
is filed exclusive jurisdiction over any actions which occur after the
date of closing.  Any lawsuit that may be filed against the receiver must
be filed in Travis County, Texas. 

  7.212 (Records with Third Parties) requires all parties connected with
the closed trust company  to turn over all books and records of the
company to the receiver. 

  7.213 (Injunction in Aid of Liquidation) authorizes the receiver to
obtain an injunction or other order required to prevent waste or wrongful
disposition of assets of the closed trust company or wrongful interference
with the receiver. 

  7.214 (Subpoena) gives the receiver statewide subpoena power for
obtaining information and documents needed in the receivership. 

  7.215 (Executory Contracts; Oral Agreements) authorizes the receiver to
terminate oral and executory contracts and any claim against the closed
state trust company that is not in writing is not valid against the
receiver.  These provisions enact the common law doctrine of equitable
estoppel and duplicate similar provisions in federal banking law.   

  7.216 (Preferences) makes any transfer or lien made or created within
four months prior to the closing of the state trust company voidable by
the receiver, and makes the parties who cause the transfer or lien liable
for the property or benefit received.  

  7.217 (Other Powers of the Receiver; Administrative Expenses) authorizes
the receiver to employ agents, including professionals, to assist in the
performance of its duties. 

  7.218 (Disposal of Property; Settling Claims) authorizes the receiver,
with court approval, to sell property, borrow money, compromise claims,
and enter into contracts necessary or proper to manage, conserve, or
liquidate the company's assets. 

  7.219 (Discretion of the Court) requires notice to the receiver prior to
a court entering an order.  

  7.220 (Filing Reports; Expenses) requires the receiver to file quarterly
status reports with the court. 

  7.221 (Court-Ordered Audit) allows the district court to order an audit
of the books and records of the receivership at the expense of the
receiver. 

  7.222 (Safe Deposits and Other Bailments) describes the process for
disposing of property from the closed state trust company not claimed by
any rightful owner. 

  7.223 (Fiduciary Activities) prescribes the action terminating all
fiduciary positions of the close state trust company. 

  7.224 (Disposition and Maintenance of Records) provides the process for
disposition of the books and records during and after the receivership. 

  7.225 (Records Admitted) requires that all books, papers and records of
the closed state trust company must be receivable in evidence in any court
if found among the effects of the closed company, whether or not they are
originals. 

  7.226 (Resumption of Business) requires the written approval of the
banking commissioner before a closed state trust company may reopen unless
a court orders otherwise. 
 

  7.227 (After-Discovered Assets) describes the procedures for disposition
of any assets discovered after the receivership is closed and includes
provisions for actions against any person that intentionally or
fraudulently concealed the assets.   


 Subchapter D. Claims Against Receivership Estate
 
 Comparable to the provisions contained in the Texas Banking Act, the
Texas Insurance Code, and federal bankruptcy law, Subchapter D relates to
the processing of claims against the closed state trust company and the
resolution by the receiver. 
 
  7.301 (Filing Claims) and  7.302 (Proof of Claim) describe procedures,
including dates, for filing claims against the receivership estate. 

  7.303 (Judgment as Proof of Claim) requires special proof for a judgment
entered against the state trust company prior to the closing of the
company to get a higher priority for payment than an unsecured creditor.
Judgments taken after the closing of the bank will not be evidence of the
claim, and proof will be required as if the judgment was never entered.
Judgments acquired prior to the closing of the company that were obtained
by default or collusion will not be conclusive evidence of the claim. 

  7.304 (Secured Claims) allows the secured claimant to take the security
for the claim and have the deficiency balance entered as an unsecured
claim, subject to the value of the security being determined under
supervision of the court.   

  7.305 (Unliquidated or Undetermined Claims) requires an unliquidated
claim to be liquidated prior to the time specified and prior to the
closing of the receivership, in which event the claim will share in any
distributions ratably with those of the same class. 

  7.306 (Set-Off) provides procedures for set-off for mutual claims of the
claimant and the closed state trust company, but if the obligation of the
company to the claimant will become due at a date in the future, the
claimant must pay the obligation to the bank and the receiver will repay
the claim when it becomes due. 
 
  7.307(Action on Claims) allows the receiver six months to accept or
reject the claims, at which time the receiver will make a schedule of the
claims available to each claimant. 

  7.308 (Objection to Approved Claim) provides for objection to any claim
by anyone prior to a date set by the receiver in the notice to the
claimants. 

  7.309 (Appeal of Rejected Claim) requires action on a rejected claim to
be filed within three months after notice of rejection.  An appeal of a
rejected claim is a de novo action in the receivership court. 

  7.310 (Payment of Claims) allows the receiver to make distributions from
time to time provided a reserve is set up to cover rejected claims on
appeal, unliquidated claims with time left to determine, and non-claiming
depositors and creditors. 

  7.311 (Priority of Claims Against Insured State Trust Company)
establishes a priority for claims against an insured state trust company
to be the same as in liquidation or purchase and assumption for a national
bank. 

  7.312 (Priority of Claims Against Uninsured State Trust Company)
describes the priority for claims against an uninsured state trust company
to be, in order of priority, administrative expenses, secured creditors to
the extent of the value of the collateral, beneficiaries of commingled
fiduciary funds, general creditors including taxes, and the claims of
capital debenture holders and the shareholders. 

  7.313 (Excess Assets) provides that any excess assets will be turned
over to the control of the shareholders, who must appoint an agent to take
over the affairs of the state trust company. 

  7.314 (Unclaimed Funds and Property) requires that any unclaimed
property be transferred to the comptroller. 


 CHAPTER 8. General Provisions

 Chapter 8 contains provisions comparable to those found in the Texas
Banking Act, pertaining to state trust companies in general.  An important
and new provision is  8.009 ("Parity"). 

  8.001 (Liabilities, Defenses, and Indemnification of Corporate
Officials) adopts the provisions of the Texas Business Corporation Act
regarding liability, defenses, and indemnification of a director, officer,
agent or employee of state trust companies. 

   8.002 (Attachment, Injunction, or Execution) provides that generally, a
state trust company is not required to post security for a judgment to
prevent execution while the judgment is being appealed. National banks
have a similar provision in 12 U.S.C.  91. 

  8.003 (Slander or Libel of a State Trust Company) provides that slander
or libel of a state trust company is a state jail felony offense. 

  8.004 (Authority to Act as Notary Public) authorizes certain officers of
a state trust company to acknowledge signatures on a trust document
regardless of employment by the company or ownership of company shares.  

  8.005 (Exemption from Securities Law) exempts state trust company
employees in certain instances from the registration requirements of
securities laws when selling company shares issued by the employer. 

  8.006 (Succession of Trust Powers) provides for automatic transfer of
fiduciary right, duties, and obligations to a successor institution. 

  8.007 (Discovery of Client Records) provides that civil discovery of a
client record is governed by  30.007, Civil Practice and Remedies Code. 

  8.008 (Compliance Review Committee) authorizes the formation of
compliance review committees with state trust companies. Also, provides
that the work product of a compliance review committee enjoys a limited
privilege from forced production in litigation. 

  8.009 (Parity) this new section implements parity between state trust
companies, state banks, and national banks.  Procedures are described for
state trust companies to notify the banking commissioner if the state
trust company intends to conduct any activity permitted for a state or
national bank that is otherwise denied to a state trust company.
Appropriate hearing and appeal provisions are included for persons
affected by an adverse decision.  The finance commission is expressly
authorized to adopt rules permitting and regulating the activity. 


SECTIONS 2-8.  CONFORMING AMENDMENTS

 These Sections make conforming amendments to other statutes that
cross-reference Chapter XI of the Texas Banking Code of 1943 and
applicable provisions of the Texas Banking Act to change the reference to
the Texas Trust Company Act. 


SECTION 9.  REPEALER

 This Section repeals Chapter XI of the Texas Banking Code of 1943.


SECTION 10.  SAVINGS CLAUSE

 This provision protects the validity of action taken under prior law
before the effective date of the Texas Trust Company Act. 

SECTION 11.  EXISTING TRUST COMPANIES

 This provision is designed to bring trust companies chartered under prior
law into conformance with the Texas Trust Company Act. 


SECTION 12.  CRIMINAL LAW TRANSITION

 Standard provision for bills that change criminal law, this provision
saves former criminal law for acts committed prior to the effective date
and applies new or changed criminal law only to acts for which all
elements of the crime occurred after the effective date of the Texas Trust
Company Act. 
 

SECTION 13.  TRANSITION FOR CHANGE OF CONTROL APPLICATIONS

 This provision provides that a controlling principal shareholder or
participant is not required to file a change of control application under
new  4.002 until the person acquires one or more additional shares of the
state trust company after the effective date of the Texas Trust Company
Act. 


SECTION 14.  TRANSITION FOR ADMINISTRATIVE PROCEEDINGS

 Standard provision for bills that change administrative procedures, this
provision saves existing law to apply to existing administrative
proceedings. 


SECTION 15.  CONFLICTS WITH OTHER ENACTMENTS

 This provision was added by the Texas Legislative Council to resolve
conflicts with other enactments of the 75th Legislature which amend
applicable laws relating to state trust companies. 


SECTION 16.  EFFECTIVE DATE: September 1, 1997.


SECTION 17.  EMERGENCY CLAUSE


COMPARISON OF ORIGINAL TO SUBSTITUTE

The Committee Substitute to H.B. 1870 expands the activities not requiring
a state charter found in SECTION 1, Chapter 3, Sec. 3.022 of the Texas
Trust Company Act to include companies performing escrow or settlement
services, and companies acting as a qualified intermediary in a tax
deferred exchange.  Furthermore, the Substitute makes perfecting changes
to language found in SECTION 13, and corrects a citation in SECTION 1,
Chapter 5, Sec. 5.502.