September 8, 1994
The Honorable William T. Graham Commissioner of Banks PO Box 29512 Raleigh, NC 27626-0512
Re: Advisory Opinion — Authority for North Carolina Banks to Invest in a Banker’s Bank under
N. C. Gen. Stat. § 53-47
Dear Commissioner Graham:
This will respond to your request for an opinion on whether or not a bank, organized under Chapter 53 of the North Carolina General Statues, i.e., a state chartered bank, may invest in a banker’s bank.
You indicated that for the purposes of our response, we are to assume that a banker’s bank is a financial institution chartered under the laws of the United States or any state, which is engaged primarily in providing services to other banks and their directors, officers and employees, and at least 50% of the capital stock of which is held, either directly or through one or more holding companies, by other banks. You also advised that historically your agency has construed N.C. Gen. Stat. § 53-47 to prohibit a state bank from investing in a banker’s bank as well as a holding company which may own such a bank, since an investment in the holding company is tantamount to an investment in the bank itself.
QUESTION OF LAW
N.C. Gen. Stat. § 53-47 prohibits a state bank from investing in the stock of ". . . any other state or national bank . . . . " with the following exceptions: (1) clearing corporations defined at N. C. Gen. Stat. § 25-8-102(3); (2) Edge Act banks organized under federal law; (3) central reserve banks having a capital stock of more than one million dollars; and (4) Federal Home Loan Banks.
As a banker’s bank is not a clearing corporation, Edge Act bank or Federal Home Loan Bank, the question of law is whether a banker’s bank can be included within the definition of a central reserve bank. If it can, then clearly there is statutory authority for a state bank to invest in the same. On the other hand, if a banker’s bank does not come within the definition of a central reserve bank, there would be no authority for a state chartered bank to invest in these banks.
Together with your request you enclosed a memorandum submitted by a private law firm which concluded that a banker’s bank meets the definition of a central reserve bank and, therefore, a state bank may invest in the same. While this memorandum offers a plausible argument that a banker’s bank may be considered a central reserve bank as defined at N.C. Gen. Stat.§ 53-47; on balance we conclude that a banker’s bank is not a central reserve bank and for that reason a state bank may not invest in a banker’s bank.
DISCUSSION OF THE ISSUE N. C. Gen. Stat. § 53-47 provides that "[t]o constitute a central reserve bank as contemplated by this Chapter [Chapter 53 of the General Statutes], at least fifty per cent (50%) of the capital stock of such bank [which must be more than one million dollars] shall be owned by other banks." It is our opinion that the definition of a central reserve bank contemplates more than the technical requirements of having a capital stock of more than a million dollars and fifty per cent ownership by other banks. We believe the focus of this definition should be placed on the terms "central" or "reserve." BARRON’S DICTIONARY OF BANKING TERMS (2d ed. 1993) at p.113, defines a central bank as follows:
[A] central monetary authority, usually an agency of a national government, that performs a number of key functions; (1) issues the nations currency; (2) regulates the supply of credit in the economy; (3) manages the external value of its currency in the foreign exchange markets; (4) holds deposits representing reserves of other banks and other central banks; (5) acts as fiscal agent for the central government, when the government sells new issues of securities to finance its operations; and (6) attempts to maintain an orderly market in these securities by actively participating in the government securities market.
Although we were unable to find any authority precisely on point, the United States District Court for the Southern District of Florida, in construing the term "central bank" at 12 U.S.C. § 632, concluded that they are a ". . . . primary financial organization of the State . . . ." performing typical central bank functions. Republic of Panama v. Citizens & Southern International Bank, 682 F.Supp. 1544 at 1546 (S.D.Fla. 1988). The functions alluded to by the Court are the same as those enumerated above.
A banker’s bank is a ". . . depository institution, usually a commercial bank, organized and chartered to do business with other banks and owned by the banks it services. These banks do not take deposits (from) or make loans to the public. . . (and). . . [t]hey may be chartered as national banks. . . ." BARRON’S at p.60.
A banker’s bank may offer services to its members which closely resemble those of a central reserve bank; however, it is not, in our opinion, a central reserve bank as perceived by N. C. Gen. Stat. § 53-47. The distinction we see between a central bank and a banker’s bank is that the former is typically an extension of a governmental unit designed to facilitate the state or national banking system, whereas the latter is a private commercial bank which is designed to provide specialized financial services to its member banks.
Finally, when an issue of statutory construction arises, the interpretation adopted by those who execute and administer the law in question is relevant and may be considered provided that it does not conflict with the intent and purpose of the act, or conflict with the interpretation of the courts. See, NC Index, Statutes § 33 (1994). See also, State ex rel Commissioner of Insurance v. North Carolina Automobile Rate Administrative Office, 294 N.C. 60, 241 S.E.2d 324 (1978), Watson Industries, Inc. v. Shaw, 235 N.C. 203, 69 S.E.2d 505 (1952), and Duke Power Company
v. Clayton, 274 N.C. 505, 164 S.E.2d 289 (1968). In our view, the interpretation by your agency does not conflict with the clear intent of the statute, which is to limit investment by North Carolina banks in other banks. Also, as the statute in question has not been interpreted by the courts, your interpretation is not in conflict with judicial construction.
CONCLUSION
In summary, it is our opinion that a banker’s bank, as described in your letter of August 16, 1994, is not a "central reserve bank" as defined at N.C. Gen. Stat. § 53-47. Therefore, a state chartered bank is not permitted to invest in a banker’s bank.
Further, since an investment in a bank holding company is the functional equivalent of an investment in the bank itself, we conclude that a state chartered bank cannot invest in a bank holding company which owns a controlling interest in a banker’s bank.
We must caution, however, that, this would be a case of first impression and a court may adopt another interpretation. We trust that this adequately addresses your questions to us. Please let us know if we may be of further assistance.
Ann Reed Senior Deputy Attorney General
L. McNeil Chestnut
Assistant Attorney General