Maryland's bankers and brokers have averted a minor war with each other thanks to a last-minute compromise over legislation that would impose tougher regulations on the trust operations of companies other than commercial banks, such as securities firms.
Representatives of the two industries, as well as Maryland's bank commissioner, appeared before a Senate panel in Annapolis yesterday to explain the deal they worked out earlier this week over two bills filed on behalf of the Maryland Bankers Association.
The bills -- identical measures filed in the House and Senate -- would have sharply raised the minimum amount of capital that trust companies run by nonbanking companies needed to hold, to $5 million from $1.5 million. Nonbank trust companies that wanted to pay dividends would have needed at least an additional $6 million in capital. Capital is the money that financial institutions must keep reserved to protect stockholders and their deposit insurer against possible losses.
The bills also would have imposed the same regulatory requirements and standards on nonbank trust companies that are applied to banks, such as periodic examinations, but it would have applied a looser set of regulations to already established trust companies.
The compromises, offered in the form of amendments, would apply the same regulatory standards to all trust companies, whether run by banks or securities firms. And they would keep the current minimum capital levels for trust operations, but retain the state bank commissioner's discretion to raise those levels if it is deemed necessary.
"The potential for taking advantage of people who cannot look after themselves is a very real possibility," said Curtis Stith, a personal trust officer at Mercantile-Safe Deposit & Trust Co., who testified before the Senate Finance Committee yesterday. "There an inherent risk associated with going into business and having people turn over millions . . . and billions of dollars that [the trust companies] manage," he said.
Mercantile's trust department, one of the largest in the state, manages about 10,000 trust accounts holding about $9 billion, according to the bank's vice chairman, Brian Topping, who testified on the bill before a House committee on Tuesday.
In their search for a steadier source of income, investment companies around the nation in the last few years have been aggressively encroaching on the trust business, which traditionally had been the bankers' turf. From 1991 to 1992, the percentage of trust business held by brokerages grew to 37 percent from 35 percent, according to a survey by Payment Systems Inc., a Tampa research firm.
Bankers who testified yesterday said they drafted the legislation in response to a recent increase in the number of proposed nonbank trust companies in Maryland.
T. Rowe Price Associates Inc. has operated a trust company since 1983, and last year a Frederick company called Qualified Investors Management Corp. started a trust company for self-directed tax-deferred retirement plans.
But what caught the bankers' eyes, they said, were the entries this year of securities firms Legg Mason Inc. and Alex. Brown Inc. Legg Mason received a certificate to operate a new trust company last month, according to a February report to the banking industry from the state.
The bill as drafted would have imposed the new requirements and capital standards only on trust companies certified after March 1, a retroactive date that would have hit only one company today: Alex. Brown, which only received its approval Monday. One of the compromises the two industries reached was to move the effective date to June 1.