# T~~EZATIVRNEYGENERAI. OPnlXAS
AU-TIN. T-s 78711

May 14, 1975 The Honorable Robert E. Stewart Commissioner Department ofBanking John H. Reagan, State Office Bldg. Austin, Texas 78701 Opinion No. H- 606 Re: Legality ofmajority stock ownership in

### nwre than one bank. Dear Commissioner Stewart:

You have requested our opinion concerning whether a corporation’s ownership ofmore than 50%ofthe capital stock ofmore than one bank violates article 16, section 16ofthe Texas Constitution or article 

### 342-903, V.T.C.S. Your question is specifically directed to ownership of stock in more than one bank by bank holding companies and not to operation of one bank by another.

The organization and activities ofbank holding companies are regulated bythe Federal Reserve Board. 12U.S. C. 6$1841,1842. Under article 2.01(4) ofthe Texas Business Corporation Act, these holding companies may not operate banks, butare not prohibited from owning bank stock. See, Flanagan V. Madison Square State Bank, 11 N.E. 2d 969 (Sup. Ill.937). Your question is whether such ownership maytiolate article 16, section 16ofthe Constitution, or article 342-903, V. T. C.S., which prohibits branch banking.

Article 16, section 16ofthe Texas Constitution provides in part:

Such body corporate [banking corporations] shall not be authorized to engage in business at more than one place.
. . . Article 342-903, V. T. C.S., provides in part:

No State, national or private bank shall engage in business in more than one place, maintain any branch office.
. . .

p. 2686The Honorable Robert E. Stewart, page 2 (H-606)

Inaletter from Attorney General Price Daniel to the State Banking Board, August 18, 1952, this office stated that neither article 16. section 16, nor article 342-903 would be violated bymere stock ownership inmore than one bank. After noting that separately incorporated banks are not branch banks, Attorney General Daniel stated:

Individuals are not prohibited from owning stock inmore than one bank in Texas. Neither is there a prohibition against bank stockholders owning stock in aholding company which in turn owns controlling interest in another bank. Ifthe only affiliation between separate Texas banks is ownership ofthe majority stock in each bank by the same persons, directly or through trustees or aholding company, we do not believe that this alone would constitute aviolation of Article XVI, Section 16. Article 16, section 16and article 342-903.,were interpreted to prohibit the control ofthe operation of more than one bank by the same corporation rather than mere ownership. The laws had been so administered since 1930and have been so since the letter was issued in 1952. We have discovered noauthoritative legal grounds upon which to question this holding. There is dicta in Attorney General Opinion WW-159 (1957) which sug,gests adifferent test than the one employed byAttorney General Daniel, but that opinion tit es noauthority for the proposition and is contrary to the great weight ofauthority. Cf., Commercial National Bank of Little Rock v. Board ofGovernors, Federal Reserve System, 451 F. 2d 86 (8th Cir. 1971); First National Bank in Billings v, First Bank Stock Corp., 306 F. 2d 937 (9th Cir. 1962); In re Cleveland Trust Company of Lake County, 311N.E. 2d 854 (Ohio 1974); Central Bank &Trust Company v. Brimhall, 497 P. 2d 638 (Utah 1972); Clearfield State Bank v. Brimhall, 471 P. 2d 161 (Utah 1970); Goldy v. Crane, 445 P. 2d 212 (Colo. 1968); Nemirow v. ‘Bloom, 445 P. 2d 214 (Cola. 1968); Peoples Bank v. Banking Board, 436 P. 2d681 (Colo. 1968); In

- re Application of Kenilworth State Bank, 230A. 2d 377 (N. J. 1967). Attorney General Daniel’s letter has been discussed by two Texas courts without criticism. Bank ofNorth America v. State Banking Board, 492 S.W.2d 458 (Tex. Sup. 1973); Bank ofNorth America v. State Banking Board, 468 S.W. 2d 529 (Tex. Civ. App. --Austin 1971). The Austin Court of Civil Appeals stated:

p. 2687The Honorable Robert E. Stewart, page 3 (H-606)

The bare fact ofownership, without more, does not constitute a violation ofSection 16. 468 S.W.2dat 532. Similarly, the Supreme Court viewed the relevant question as:

. . . whether the proposed or chartered bank was actually controlled or operated directly or indirectly by another bank
. . . 492 S.W. 2dat 459. Pursuant1 to its authority to assess state law in the regulation ofbank holding companies, Whitney National Bank in Jefferson Parish v, Bank of New Orleans &Trust Co., 379 U.S. 411 (1965). the Federal Reserve Board has held Texas’ branch banking laws to be inapplicable to stock ownership byholding companies. Application of Farmers and Mechanics Trust Company ofChildress. Texas, (Federal Reserve Bulletin, January, 1960, p. 14. 16); cf. Application of Trans-Nebraska Co., Bulletin, May, 1963, p. 633, 634). Lincoln, Nebraska (Federal Reserve This ruling was based on the legislative history ofthe Bank Holding Company Act of 1956which states inpart:

The purposes ofbranch banking laws are not identical with the purposes ofthis bill to control bank holding companies.
. . . It is believed the bill contains adequate provisions to regulate bank holding company operations without an arbitrary tiein with branch banking laws. 1956 U.S. Code Cong.Ad. News, 84th Congress 2492-2493. We do believe it important to observe that, as pointed out byAttorney General Daniel, one bank controlled by aholding company may so dominate and control another bank as to violate these provisions ,inaparticular case, However, as ageneral principle the long settled ruling is that mere stock ownership is not violative ofthese prohibitions. Under Texas law such an established construction is entitled to great weight and is not to be disturbed unless it is clearly erroneous, Thomas v. Groebl. 212 S.W. 2d625 (Tex. Sup. 1948); Travis County v. Matthews, 235S.W. 2d 691 (Tex. Civ. App. --Austin 1950, writ ref ’d., n.r.e.); Gaynor Construction Co. ‘v. Board of Trustees, 233S.W. 2d472 (Tex. Civ. App. --El Paso 1950, writ ref ’d. ). Since we have discovered noauthority which questions the 1952ruling ofthis office, in our opinion it remains a correct statement ofthe law.

p. 2688The Honorable Robert E. Stewart, page 4 (H-606)

SUMMARY A bank holding company may own amajority ofthe stock ofmore than one bank without violating article 16, section 16ofthe Texas Constitution or article 342-903, V. T. C.S. One bank controlled by a bank holding company may so dominate and control the operation of another bank as to violate these provisions in aparticular case. Very truly yours,

APPROVED:

DAVID M. KENDALL, First Assistant

C. ROBERT HEATH, Chairman Opinion Committee

p. 2689