T~~EZATIVRNEYGENERAI. 

OPnlXAS 

AU-TIN. T-s 78711 

May 14, 1975 

The Honorable Robert E. Stewart 

Commissioner 

Department of Banking 

John H. Reagan, State Office Bldg. 

Austin, Texas 78701 

Opinion No. H- 606 

Re: Legality of majority stock 

ownership in nwre than one 

bank. 

Dear Commissioner Stewart: 

You have requested our opinion concerning whether a corporation’s 

ownership of more than 50% of the capital stock of more than one bank 

violates article 16, section 16 of the 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 of bank holding companies are 

regulated by the Federal Reserve Board. 12 U.S. C. 6 $1841,1842. 

Under article 2.01(4) of the Texas Business Corporation Act, these 

holding companies may not operate banks, but are 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 16 of the Constitution, or article 342-903, 

V. T. C. S., which prohibits branch banking. 

Article 16, section 16 of the 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. 2686 
The Honorable Robert E. Stewart, page 2 (H-606) 

In a letter 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 by mere stock ownership in more than one bank. After noting that separately incorporated 

banks are not branch banks, Attorney General Daniel stated: 

Individuals are not prohibited from owning stock 

in more than one bank in Texas. Neither is there a 

prohibition against bank stockholders owning stock in 

a holding company which in turn owns controlling 

interest in another bank. If the only affiliation between 

separate Texas banks is ownership of the majority 

stock in each bank by the same persons, directly or 

through trustees or a holding company, we do not 

believe that this alone would constitute a violation of 

Article XVI, Section 16. 

Article 16, section 16 and article 342-903.,were interpreted to prohibit the 

control of the operation of more than one bank by the same corporation 

rather than mere ownership. The laws had been so administered since 

1930 and have been so since the letter was issued in 1952. We have discovered no authoritative legal grounds upon which to question this holding. 

There is dicta in Attorney General Opinion WW-159 (1957) which sug,gests 

a different test than the one employed by Attorney General Daniel, but that 

opinion tit es no authority for the proposition and is contrary to the great 

weight of authority. Cf., Commercial National Bank of Little Rock v. Board 

of Governors, 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, 311 N. 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. 2d 681 (Colo. 1968); In 

re Application of Kenilworth State Bank, 230 A. 2d 377 (N. J. 1967). - 

Attorney General Daniel’s letter has been discussed by two Texas courts 

without criticism. Bank of North America v. State Banking Board, 492 

S. W. 2d 458 (Tex. Sup. 1973); Bank of North America v. State Banking Board, 

468 S. W. 2d 529 (Tex. Civ. App. --Austin 1971). The Austin Court of Civil 

Appeals stated: 

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

The bare fact of ownership, without more, does 

not constitute a violation of Section 16. 468 

S. W. 2d at 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. 2d at 459. 

Pursuant1 to its authority to assess state law in the regulation of bank 

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 

by holding companies. Application of Farmers and Mechanics Trust Company 

of Childress. 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 of the Bank Holding Company Act of 1956 which states in part: 

The purposes of branch banking laws are not 

identical with the purposes of this 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 by Attorney 

General Daniel, one bank controlled by a holding company may so dominate 

and control another bank as to violate these provisions ,in a particular case, 

However, as a general principle the long settled ruling is that mere stock 

ownership is not violative of these 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. 2d 625 (Tex. 

Sup. 1948); Travis County v. Matthews, 235 S. W. 2d 691 (Tex. Civ. App. 

--Austin 1950, writ ref’d., n. r. e. ); Gaynor Construction Co. ‘v. Board of 

Trustees, 233 S. W. 2d 472 (Tex. Civ. App. --El Paso 1950, writ ref’d. ). 

Since we have discovered no authority which questions the 1952 ruling of this 

office, in our opinion it remains a correct statement of the law. 

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

SUMMARY 

A bank holding company may own a majority 

of the stock of more than one bank without violating 

article 16, section 16 of the 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 a particular case. 

Very truly yours, 

APPROVED: 

DAVID M. KENDALL, First Assistant 

C. ROBERT HEATH, Chairman 

Opinion Committee 

p. 2689