When Peak Trust Company announced on February 8, 2022, that it had received conditional approval for a national charter and planned to open an office in Wilmington, Delaware, it marked a significant strategic decision. Founded 25 years ago and operating under state charters in Alaska and Nevada, the move to a national charter raises an important question: Why would a trust company pursue a national charter rather than obtaining another state charter?
This blog post explores the broader considerations that might lead a trust company to seek a national charter instead of a state charter.
The Basics: State vs. National Charters
Trust companies typically operate under one of two frameworks:
- State Charter: Authorized and regulated by individual state banking or financial authorities.
- National Charter: Granted by the Office of the Comptroller of the Currency (OCC), the federal agency responsible for overseeing nationally chartered financial institutions.
While both options allow a trust company to provide fiduciary and administrative services, key differences in jurisdiction, regulatory scope, and operational flexibility often influence the decision.
Advantages of a National Charter
A national charter can offer several advantages, particularly for a trust company with multi-state or national ambitions:
- Uniformity in Regulation: With a national charter, a trust company operates under a single, uniform regulatory framework established by the OCC. This eliminates the need to navigate the patchwork of state-by-state regulations and reporting requirements. For companies already operating in multiple states, like Peak Trust Company, consolidating under one regulatory regime can significantly reduce administrative burdens.
- Broad Market Access: A national charter provides broader geographic reach, allowing the trust company to serve clients across all states without needing separate state charters or licenses in each jurisdiction. This is particularly valuable for companies that cater to high-net-worth clients with assets and estates spanning multiple states.
- Preemption of Certain State Laws: Nationally chartered trust companies may benefit from preemption of certain restrictive state laws that could otherwise limit their operations. This can provide a competitive advantage in delivering more flexible or innovative trust solutions to clients.
- Reputation and Credibility: A national charter conveys a level of prestige and credibility because it reflects compliance with rigorous federal regulatory standards. This can enhance client trust and attract business from those who value the perceived stability of a federally chartered institution.
- Strategic Growth and Diversification:
Expanding under a national charter can align with a trust company's strategic growth goals. For instance, entering Delaware—a state renowned for its favorable trust laws and tax environment—under a national charter might signal an intention to cater to clients on a national scale, leveraging Delaware's advantages without needing to commit to a separate state charter.
Why Not Another State Charter?
While state charters offer certain benefits—such as potentially lower regulatory fees or alignment with specific state laws—a trust company might avoid obtaining additional state charters for the following reasons:
- Increased Complexity: Managing multiple state charters requires compliance with diverse regulatory frameworks, increasing operational complexity and costs.
- Limited Scope: A state charter is typically confined to the issuing state unless supplemented by additional licensing. For a company seeking to expand nationally, this approach can be cumbersome.
- Fragmented Oversight: Different state regulators might have inconsistent requirements, making it harder to standardize policies and procedures across the organization.
Conclusion
For a trust company like Peak Trust Company, choosing a national charter over additional state charters reflects a strategic decision to streamline operations, broaden market reach, and leverage the advantages of federal oversight. While state charters remain an excellent choice for companies focused on a single jurisdiction or region, a national charter aligns well with goals of scalability, uniformity, and prestige.
As the financial and regulatory landscape continues to evolve, the decision between a state or national charter will depend on each trust company’s unique priorities, client base, and growth strategy.
Hani Sarji
New York lawyer who cares about people, is fascinated by technology, and is writing his next book, Estate of Confusion: New York.
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