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October 28, 1958

Honorable J. M. Falkner Banking Commlssioner Capital NationalDank Building Austin,Texas

Re: Attorney General Opinion No. NW-412

Dear CcmmissionerFalkner:

At the request of many interestedbanks we have extensivelyreviewed OpinionNo. WW-412 and have concluded that it is a correct analysis of the law.

Therefore, this is to adviseyou that we do not intend to aiter the conclusionsreached in the opinion.

WW:csbAun~rni ~.TEXAR

April 

### 9, 1958

Hon. J. M. Falkner Opinion No. NW-412 Commissioner Department of Banking Re: Are banking facilities of Austin 14, Texas various national banksmal~ntained on federalmilitary establishmentsand atVeterans Dear Mr. Falkner: Administrationhospitals illegal?

You have requested our opinion as to the legality of themaintenance of banking facilities by various national banks. The issue raised concerns chiefly Article 3, ,_I 24 hapter IX of the Texas Banking Code, as amended Act? 1957, 55th Legislature,page 

### 448,Chapter 220, Section 3.(Art!.:le 342- 903V.C.S.), which prohibits state and nal;hxm.l :omks from maintaining branch offices and from cash%ng cheGks or receiving deposits except in its own banking house.

As we understand the facts, these facilities are located in Texas on some eighteendifferent bases o.fthe Army, Navy and Air Porte and at a Veterzi, u...,,,..... Am ._ -., . -, j:.l "':I <." ,., 7 (I .L c

_ hospital located in Temple, Texas. pi,3s*:'h,:;.j.,.i;~fe$g p:",;,- vide services in accordancewith the re&;il!.ii;,f<,~i~ ,;." ?::e Air Force, A-rmy

and Navy, as the casemay be. 1‘xe';s-;<df";$ -;;ie Veterans A&ni,nistration operation is s~‘~3,t;~.ri-‘111~;L1S‘ .:~“.?ikLcal)

. The following is a listing of the services z.9;:-.t r>.f;li; ir the applicableAir Force Regulation:

"(1) Provision for paying an5 :deceF~iE:;g facilities for officers, airmen ar8 'civf:.ian employees of the Department of the Air Force acting in their individual capacities.
"(2) Provision for paying and receiving facilities for custodiansof non-appropriated funds of the Air Force, acting in such capacity.


### "(3) Furnishing cash to finance officers of the Air Force, includingpayroll requfrements when determineddesirable.Hon. J. M. Falkner,page 2 (NW-412)

"(4) Acceptingdeposits for finance officers of the Air Force for credit to his official account with Treasurer of the United States.


### “(5) Selling savingsbonds and stamps for cash.


### “(6) Selling bankingpaper, such as cashier's checks, bankmoney orders and travelers' checks.
"(7) Redemption of savingsbonds."

Article 

### 3, Chapter IX of the Banking Code provides:

"'Art. 

### 3. Branch Banking Prohibited. No state,national orprivate bank,shall engagzin business inmore than one place,maintain any branch office, or cash checks or receive deposits except in its own bankinghouse.

. ." supplied). (-Emphasis

In each case, these facilities aremaintained separateand :... apart from the bankinghouse of the respectivenational banks concerned. The prohibition of the statute is clear and unambiguous as to the cashing of checks and receipt of deposits. It is immaterial that the facilities are located on military reservations on which the State of Texasmay in some instances have ceded jurisdiction,for the prohibition runs against the parent banks which in each instance is clearly locatedwithin the state's jurisdiction. It is unnecessary to decide whether the prohibition of the statuteagainst engaging in business at more than one place or maintaining a branch office applies to the situationat hand, for the cashing of checks'and receipt of deposits for and on behalf of military personnel and civilian employees in their individual capacities is clearlyproscribed by Article 

### 3, Chapter IX of the Banking Code. Accordingly, the balance of this opinion will be limited todiscussion of that activity.

The questionhas been raised as to the scope of the StatelS~authorityto regulate the activities of national banks. Can a'state prohibit a national bank from engaging in branch banking activities? We think this questionwas determined in the case of First National.Hank in St. Louis v. State of Mish hit tlonal bank could not'%th'imEu%iG viol% t;i sou+i, 263 U.S b40 ( 23) 1 d th t sta:e %.%te which provides that "Nobank shallmaintain in this stateaHon. J. M. Falkner,page 

### 3 (WW-412)

branch bank or receive deposits or pay checks except in its
own bankinghouse." Subsequent to the Court's decision in this case; Congress chose to enact the languagenow,.found~.in 12 USC 

### 36,which reads as follows:

"The conditionsupon which a national banking associationmay retain or establish and operate a branch or branches are the following:
11 .(c) A national banking assoclatlonmay; with the approval of the Comptroller of the 'Currency,establishand operate new branches: (1)Within the limits of the city, town or village in which said association is situated, if such establishmentsand operation are at the time expresslyauthorized to State'banksby the law of the State in

2) at any point within the said association is situated, if such establishmentand operation are at the time authorized to State banks by the statute law of the State in question by language specificallygranting such authority affirmativelyand notmerely by implication
or recognition,and subject to the restrictlons as to location imposedby the law of the State on Statebanks.

. . II .(f) The term 'branch'as used in this section shallbe held to include any branch bank, branch office, branch agency, additional office, or any branch place of business located in any State or Territory of the United States or in the District of Columbia at which deposits are received, or checkspaid, ormoney lent." plied). (RnphasissupThis language codifies the Court's decision in First National Hank in St. Louis v. State of Missouri, supra.-examination of the leeislativehistorv of 12 USC 3-1s indicates that the purpose of the statutkwas to preserve to the states their right to prohibit national banking within their boundaries from engaging in any degree of branch banking. (See the remarks of CongressmanLute in the Debates of Congress, 77 Congressional Record, 5895). We are not unaware of the contrary language in two Michigan cases, (Rushtonv. Michigan National Hank- .

Hon. J. M, Falkner,page 4 (WW-412)

298 Mich. 417, 299 N.W. 129 Mich. Sup. 1941); Millard v. First National Bank of Detroit, 33 Mich. 610, 61 N.W.2d 804 (Mich. Sup. 1953)). In neitherwas review soughtby the Supreme Court of the United States. At the time of Rushtonv. Michigan National Bank, supra, the state statute authorizedbranch banks in certain.instances. There was, therefore, the requisite state statutoryauthorization set forth in 12 USC 36. At the time of Millard v. First National Bank of Detroit, supra, the state statutedid not apply to national banks Cases are thereforedistinguishable. There is nothing in the legal authorities nor in the legislativehistory of the enactment of 12 USC 36 to indicate that Congressmeant to limit In any way the decision of First National-Hank in St. Louis v. State ofMissouri, supra. Accordingly, it is our opinion that the state does have authority to prohibit national banks from engaging in branch banking.

The proponents of these branch facilitieshave submltted lengthybriefs which we have carefully considered. They contend that the state statutedoes not apply on the grounds that the facilities in question are beingmaintained
as depositoriesof publicmoney and as fiscal and financial agents of the United States governmentpursuant to 12 USC 90, and pursuant to an opinion of the Honorable Tom Clark when he was Attorney General of the United Stateswith which you are familiar. (Opiniondated January 20, 1948,directed to the Secretary of Treasury and Secretary of the Army). A careful scrutinyof this opinionwill show at the outset that it does not authorize the cashing of checks or receipt of deposits on behalf of military personnel and civilian - employees in their own individual capacities,although it does authorize themaintenance of some of the other types of services set out above.

We are aware of the language In the opinion of the Federal District Court for the NorthernDistrict of Texas in United Statesv. Papworth, 

### 156Fed. Sup. 

### 842, (November11, m3.f) presently on appeal to the Court of Appeals for the Fifth'Circuit to the effect that the branch facilitiesmaintained on Carswell Air Force Base cannotbe regulatedby the State because the facility is designated as a fiscal and financial agent of the United States and a depository of publicmoney. A careful reading of the case will show that the language alluded to was clearlyunnecessary to the holding of the case and is thereforedictum. Furthermore, the question of whether or not the bank, in cashing checks and receiving deposits formilitary and civilianpersonnel acting in thelr
own individual capacity,was actingwithin the scope of itsHon. J. M. Falkner,page 

### 5 (WW-412)

agency or authority as depository of the United States or as a fiscal or financial agent of the United States,was not in

language or legislativehisapplicable federal statute, indicates that the cashing for Individuals falls withissue.

There Is nothing in the tory'of 12 USC 90 or of any~other
or in the legal authorities, that of checks and receipt of deposits in the scope of authority of a national bank acting as a fiscal or financial agent of the united States. Historically, the activities of a fiscal and financial agent have been limited to transactionswhich are for themonetary and fiscal benefit of the United States, such as the purchase of gold or silver, the redemptionof specie,and the funding of loans for the United States. Clearly, the activities of national banks in cashing checks and receivingdeposits for individualsdoes not create such a monetary or fiscal benefit for the United States government. Obviously, in conducting such activities, the banks are not acting as depositories of publicmoney, Furthermore, in conducting such transactions the banks are not acting on behalf of the United States in the
sense that an agent acts on behalf of his principal for these transactionsare for the direct benefit of the individuals concerned. Thus, the cashing of checks and receiving of deposits by military and civilianper,sonnelin their individual capacities cannot be said to fall within the scope of any agency or function that national banks are bound to perform pursuant to 12 USC 90 or any other statuteusing similarverbiage.

Even if the transactions In question did fall within the scope of such an agency,your attention is directed to the fact that the present language of 12 USC 

### 36was enacted in 

### 1927,subsequentto enactment of 12 USC 90. Itwas therefore a limitationupon themethods andmeans national banks could employ in performing the functions authorized or required by law. It prohibits these functions from being carried out by the means of,"branches"as that term is defined in 12 USC 

### 36. Therefore,by no reasonable construction can 12 USC 90 be said to override the provisions of 12 USC 

### 36 which preserves to the states their historic right to prohibit the activitiesdescribed in accordancewith the holding of First National Hank in St. Louis v. State of Missouri, supra.

SUMMARY

The maintenance by national banks which have theirmain bankinghouses located in the State of Texas of additional and separateof-Hon. J. M. Falkner,page 6 (WW-412)

fices on military reservations and atVeterans Administrationhospitals, at which checks are cashed and deposits received on behalf of military personnel or civilian employees in their individual capacities, is illegalby virtue of Article 3, Chapter IX of the Texas Banking Code,
as amended.
Very truly yours,

WILL WILSON Attorney General of Texas


# + : CA, ., &./‘f )..,

i _^,,,. <
Wallace P. Finfrock Assistant WPF:nh

APPROVED:

OPINION COMMITTEE: Geo. P. BUickburn Chairman C. K. Richards Houghton Brownlee,Jr. Lawrence Jones

REVIEWED FOR THE ATTORNEY GENERAL BY: W.V. Geppert