Court Opinion

ID: 4132773
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:30:12.876971+00
Date Added: 2024-06-11T12:51:56.400363
License: Public Domain

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

                                          May    14, 1975

The Honorable    Robert  E. Stewart                         Opinion     No.     H-      606
Commissioner
Department    of Banking                                    Re: Legality    of majority stock
John H. Reagan, State Office Bldg.                          ownership    in nwre than one
Austin,  Texas    78701                                     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 owner-
ship 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 dis-
covered     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.,    Lincoln,    Nebraska    (Federal   Reserve
Bulletin,   May, 1963, p. 633, 634).        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 pro-
        visions   in a particular   case.

                                               Very   truly   yours,

APPROVED:

DAVID   M.   KENDALL,     First    Assistant

C. ROBERT   HEATH,       Chairman
Opinion Committee

                                         p. 2689