The Nevada state Senate has taken a positive step in the right direction by passing a bill requiring new trust companies to have a minimum capital of $1 million by 2012. At the same time, the bill also allows existing trust companies the grace proviso to raise their minimum capital to at least $500,000 by 2012. Trust companies in Nevada are widely relied on to handle anything from trust deeds, commodity investments, to family trusts.

Currently, trust companies in Nevada have only to maintain a capital of $300,000 in order to operate, and this was viewed as inadequate, according to George Burns, commissioner of the Financial Institutions Division. Burns’ proposal was passed almost unanimously with a 6-0 vote with one member absent.

The Nevada state Senate has taken a positive step in the right direction by passing a bill requiring new trust companies to have a minimum capital of $1 million by 2012. At the same time, the bill also allows existing trust companies the grace proviso to raise their minimum capital to at least $500,000 by 2012. Trust companies in Nevada are widely relied on to handle anything from trust deeds, commodity investments, to family trusts.

Currently, trust companies in Nevada have only to maintain a capital of $300,000 in order to operate, and this was viewed as inadequate, according to George Burns, commissioner of the Financial Institutions Division. Burns’ proposal was passed almost unanimously with a 6-0 vote with one member absent.

According to the Las Vegas Review Journal:

Burns' proposal changes the law to require new trust companies to maintain more capital, which can be used to pay for receivership expenses or to replace assets diverted from client trust accounts.

While he considers the bill an improvement over existing law, Burns said he was compelled to compromise on several of his proposals because of opposition from a "relatively small group" of existing trust companies. The amended bill contains a "grandfather" clause allowing some existing trust companies to continue operating with less capital than new trust companies. About 25 trust companies are licensed in Nevada.

"We just didn't want the bill to unintentionally force some good folks out of business," lobbyist Chris Ferrari said.

Burns referred to recent trust company cases to illustrate his point.

"I can tell you that not all trust companies are trustworthy," Burns told the committee.

I certainly think this move will increase customer confidence in trust companies, and make it harder for existing and new startups to divert or misuse customer funds. While fraud cases have existed in the past, it’s still worth keeping in mind the relatively low incidence.

In a time when public confidence in banks and financial institutions are at an all time low, I think the message being sent out is that the government is keeping en eye on trust companies and would want to assure the public that their funds are safe with the trust companies. Now perhaps it’s time for other states to also follow in Nevada’s direction?