Regulator Panel FIRMA 25

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Annual Risk Management Training Conference April 19, 2011

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Regulatory Consolidation

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OTS Fiduciary Activities & Regulations

  OCC/OTS Consolidation – July 21, 2011 Fiduciary Powers – Thrifts vs. National Banks   OCC - about 30% of national banks have fiduciary powers. OTS - about 10% of thrifts act as fiduciaries.

 OTS Fiduciary Regulations:   In general, OTS regulations track OCC’s 12 CFR 9 One notable exception - certain fiduciary activities performed by a thrift do not require fiduciary powers. Examples: Acting as trustee of certain EB plans, or acting as an IRA trustee.

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Where are all those Assets Invested?

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Asset Management Statistics

Fiduciary and Related Assets - All Banks 12/31/2010

FIDUCIARY AND RELATED ASSETS ($000s)

Personal trust and agency accounts Employee benefit and retirement related trust and agency Employee benefit - Defined contribution Employee benefit - Defined benefit Other employee benefit & retirement related Corporate trust and agency accounts Investment management & investment advisory Foundation and endowment Other fiduciary accounts

Total Fiduciary Accounts Custody and safekeeping accounts Total Fiduciary & Custody/Safekeeping Accounts Managed Non-Managed Total Assets

$ 667,493,826 $ 268,188,714 $ 935,682,540

% of Fid Assets

5% $ 650,877,773 $ 1,974,384,839 $ 2,625,262,612 $ 972,523,527 $ 4,561,055,911 $ 5,533,579,438 $ 221,011,369 $ 1,527,799,616 $ 1,748,810,985 $ 20,219,820 $ 3,885,101,206 $ 3,905,321,026 $ 1,157,544,060 $ 26,016,163 $ 1,183,560,223 $ 188,330,728 $ 184,595,013 $ 372,925,741 $ 189,001,140 $ 3,779,464,147 $ 3,968,465,287

$ 4,067,002,243 $ 16,206,605,609 $ 20,273,607,852 $ 67,610,853,883 $ 67,610,853,883 $ 87,884,461,735

13% 27% 9% 19% 6% 2% 20% 100%  EB and retirement related accounts make up 50% of the fiduciary assets administered by banks.

Source: Preliminary 12/31/2010 Call Report data. Includes all national and state-chartered commercial banks and national trust banks.

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Asset Management Statistics

Total Market Value of Collective Investment & Common Trust Funds Continues to Increase from 2008 lows.

$3.50

$3.00

$2.94

$3.00

$2.68

$2.51

$2.50

$2.32

$2.29

$2.37

$2.01

$2.02

$2.00

$2.00

$1.75

$1.74

$1.67

$1.64

$1.51

$1.47

National Banks All Banks $1.50

$1.33

$1.26

$0.90

$1.00

$0.85

$0.50

$0.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Preliminary 12/31/2010 Call Report data. Includes all national and state-chartered commercial banks and national trust banks.

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Asset Management Statistics

Managed Assets held in Fiduciary Accounts - All Banks 12/31/2010 Common Trust Funds and Collective Investment Funds, 29% U.S. Treasury/Government Agency Obligations, 3% Money Market Mutual Funds, 3% Unregistered Funds and Private Equity Funds, 4% Municipal Obligations, 5% Other Short-term Obligations, 5% Equity Mutual Funds, 6%   Common and Pref erred Stock, 22% Other Mutual Funds, 5% Misc Assets, 7% Other Notes and Bonds, 9% Nearly one third ($1.2 trillion) of total managed assets held in fiduciary accounts ($4.1 trillion) are invested in bank CIFs and CTFs. Another $585 billion or 14% of managed assets are invested in mutual funds; $224 billion of that $585 billion is invested in proprietary mutual funds.

• Chart does not include investments in real estate, real estate mortgages and deposits since these represented 1% or less of total managed assets • Source: Preliminary 12/31/2010 Call Report data. Includes all national and state-chartered commercial banks and national trust banks.

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Asset Management Statistics

Collective Investment Fund Assets All Banks 12/31/2010 Specialty/Other, 5% STIF/MM, 14% Municipal Bond, 1% Domestic Equity, 35% Taxable Bond, 18%  Stock/Bond Blend, 6% International Equity, 22% 57% or $1.3 trillion of total collective investment fund assets ($2.37 trillion) in 2010 were invested in domestic and international equities. This is up from the 55% of collective investment fund assets that were invested in domestic and international equities in 2009.

Source: Preliminary 12/31/2010 Call Report data. Includes all national and state-chartered commercial banks and national trust banks .

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Regulatory Focus

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Dodd-Frank and Related Issues

  Volcker Rule – organizing and offering hedge funds and private equity funds will face limits. Other D-F provisions that are likely to impact AM world:          Money Market Funds/Shadow Banking Use of rating agencies in regulations Temporary FDIC insurance – transaction accounts New FDIC assessment rules/custody banks SEC “fiduciary standard” RIA Custodian Information Requests – SEC Study on RIA Custody Derivatives CFTC rules 10

Recent Guidance

 Asset Management Operations and Controls Handbook (January 2011)  Provides a single, comprehensive source for OCC Asset Management operations issues, as well as procedures to assist examiners as well as the industry determine where the risks are. 11

Rent-A-Trustee Concerns

 OCC Bulletin #2011-11 “Collective Investment Funds and Outsourced Arrangements” requires banks to:    Perform due diligence on and periodically monitor your fund’s vendors Ensure only eligible participants are admitted to bank funds Include in any contract with a third party a requirement that the vendor will prominently identify the bank that sponsors the fund in any advertising and other materials.

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Rent-A-Trustee Concerns

 OCC Bulletin #2011-11  Principally applies to unaffiliated vendors such as RIAs   Does not expressly apply to affiliates as we assume banks and their affiliated RIAs have a common interest not to unnecessarily assume reputation, compliance, strategic or transaction (operational) risks Continues to allow outsourcing of certain CIF functions to vendors, subject to longstanding OCC CIF and vendor management guidance.

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Recent AM Group Guidance

 OCC Bulletin 2010-37: “Self-Deposit of fiduciary funds”  “Awaiting investment or distribution” – 12 CFR 9.10

     Authorized unless prohibited by applicable law Rate must be consistent with applicable law Sufficient qualifying collateral must be pledged at all times Collateral must be controlled by two fiduciary employees “Permanent investments” - 12 CFR 9.12

  Not permitted unless authorized by applicable law Pledge not permitted – heightens concern about credit risk 14

OCC Supervision Issues

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Asset Management Exam Issues

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Conflicts of Interest Issues

  OCC Bulletin 2008-5 (Divestiture of Certain Asset Management Businesses) Fee Arrangements   Affiliated/proprietary investments Annual Review of Fiduciary Accounts  OCC Bulletin 2008-10 (12 CFR 9.6(c)) 16

Risk Considerations

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Investment Issues

     Investment Objectives Third Party Investment Managers Unique Investment Products or Strategies Investment Performance Fixed Income Strategies 17

Risk Considerations

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Other Supervision Issues

 Impact of earnings pressure on internal controls  Staffing  Compliance/Risk Management functions  Audit Coverage  Regulation R  Recordkeeping regulations  Compensation and bonus plans 18

Comments and Questions

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OCC Asset Management Handbooks

          Asset Management ***Asset Mgt. Operations & Controls*** Collective Investment Funds Conflicts of Interest Custody Services Insurance Activities Investment Management Services Personal Fiduciary Services Retail Non-deposit Investment Products Retirement Plan Services Handbooks and Bulletins are available at www.occ.gov

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Contact information:

Joel Miller Asset Management Group Leader Phone: (202) 874-4493 21