Subject: File No. S7-26-04
From:

July 16, 2004

Subject: Regulation B

Dear Ms. Sundberg:

I am trying to put together my thoughts to comment on the SEC's proposed Regulation B and I seem to still be confused on a couple of points. I would appreciate it if the SEC could clarify these points.

My first area of confusion is the "Indenture Trustee Exemption". First of all as way of background; we are a small bank (under $100 million); however we service about $400 million of various types of bond issues for political subdivisions throughout the State of Wyoming, including for the State of Wyoming. We use 12b-1 investments in these accounts whereby the 12b-1 fee can be up to 50 basis points. However, in the majority of these cases where a 50 basis point fee is charged it is under a tri-party agreement between us, the political subdivision and an independent registered financial advisor to the political subdivision; whereby the financial advisor receives of the 50 basis points as their compensation. This is all disclosed in the agreement with the political subdivision.

I am confused as to how far the Indenture Trustee exemption would apply to these accounts especially if proposed Rule 776 is tied into the equation. I interpret Regulation B Rule 776 (a)(1) (iii) as giving us an exemption to these accounts as long as the requirements of (a)(2) are met. However, I wonder in our situation if we would be violating this Rule since we collect the total basis points from the fund and remit to the regulated financial advisor their of the fee? We collect the fee from the fund since as the fiduciary on these types of accounts; we are required by the trust instruments to hold the funds on behalf of the bondholders. Also, what effect is there on the whole scenario since we are directed by the regulated financial advisor on behalf of the political subdivision to invest the funds into this type of 12b-1 fund?

Secondly, is this exemption independent of the small bank custody exemption? If it is not, we could exceed the $100,000 annual limit for small banks in certain years depending on the volume of bond transactions in a given year.

If the exemptions contained in Rule 776 are independent of the small bank exemption; this would give us the flexibility to carry on with our current course of business of providing bond services to political subdivisions throughout our service area .

We are also confused as to whether the small bank exception is independent of the Sweep Accounts Exception. Again, our institution uses sweep accounts for a limited number of small business and we are concerned as to whether fees generated from the use of 12b-1 funds in sweep accounts apply to the annual limit for small banks.

The use of sweep accounts by small rural banks has been one of the only methods that small banks could provide a short term cash management tool to business customers. As the Commission may be aware, banks have been prohibited from paying interest to business customers on demand deposits since the 1980's. The sweep account has been the only method that small rural banks have been able to provide this service to "small" business customers in rural areas. We would also differ with the Commission's finding on the definition of "no-load" fund; as it has been our experience that the customer and the industry in our area of the country has accepted the 50 basis point fund as an acceptable product. The Commission needs to understand that small institutions are dealing with small sweep accounts of between $25,000-$150,000 for short durations. These types of accounts are not income producers to small banks as implied in the Commissions comments; but instead accommodation tools for small business entities. The Commission's comments indicate that there is more of a "risk' to the customer when a 12b-1 fee in excess of 25 basis points is charged. Again, we do not understand the Commission's reasoning for this comment, since it is our experience that the 50 basis point fund is made up of the exact same investments as a 25 basis point fund.

Finally, we do commend the Commission for raising the small bank exemption from $100 million to $500 million. However, if the exemptions granted in Rule 776 and for sweep accounts are not independent of the small bank exemption; we would ask the Commission to consider raising the $100,000 annual limit for small banks to at least $250,000 since we could exceed the proposed annual limitation in certain years. We would at least ask the commission to at least consider $250,000 annual limit for a period of time of at least 5 years which would allow us to adjust our relationships on these types of accounts.