98-4

May 4, 1998

Re: ________ – – Custodial Services for IRA Accounts

Dear ________:

This is in response to your letter of March 31, 1998, in which you asked whether ________ (“_______”) may perform certain functions with respect to customer-directed individual retirement accounts (“IRAs”).

As we understand it, the circumstances are as follows: ________ is a state-chartered bank which is authorized to engage in commercial banking business but not trust business. It proposes to enter into an agreement (the “Agreement”) with ________. (“________”), a NASD registered broker/dealer, pursuant to which ________will sell mutual funds on ________ premises. To the extent that the mutual funds so sold are intended to be held in an IRA of the customer, the Agreement provides that ________ may enter into agreements on behalf of ________ appointing ________as custodian of the IRA. The investment and disposition of assets in the IRA will be directed exclusively by the customer, and ________ will have no investment discretion with respect to or control of the account other than maintaining custody of the assets, keeping records and making certain informational reports. ________ will appoint ________ as its agent to perform these functions. ________ will have the power to oversee performance of the custodial duties.

In our view, a commercial bank need not have authorization to engage in trust business in order to act as custodian of an IRA, provided that the custodial agreement does not confer upon the bank any discretion or responsibility to select or dispose of assets in the account. Accordingly, in our view, ________ is not required to obtain authorization to engage in trust business in order to carry out its responsibilities under the Agreement.

Among other laws, this Department administers the California Banking Law, Division I (commencing with Section 99) of the Financial Code. We express no opinion as to any law, state or federal, other than the Banking Law. Futhermore, this response is limited to the facts and circumstances set forth above. Should any of the facts or circumstances change, our view might be different. Finally, we express no opinions in this letter as to the safety or soundness of ________ proposed arrangement with ________.

If you have any questions concerning this matter please feel free to contact me at (415) 263-8512.

Very truly yours,

CONRAD W. HEWITT
Commissioner of Financial Institutions

By

THOMAS M. LOUGHRAN
Senior Counsel

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