Montana Attorney General Opinion 15-345

Opinion No. 345 Banks and Banking-State Banks, Power to Borrow. HELD: State Banks have power with approml of Superintendent of Banks to borrow for seasonal require- ments or unexpected withdrawals. September 21, 1933 You have submitted the following: "The Reconstruction Finance Cor- poration is permitted to loan money to assist hanks in the repairing of their cnpital where an impnirment exists. "This assistance will be needed in some cases so that banks may be per- mitted to join the Federal Insurance Deposit Corporation in Montana. The Reconstruction Finance Corporation is not permitted to make loans except on preferred stock, capital notes or de- bentures. "re have always presumed thnt unless specifically prohibited, a state bank in ]\iontana can do any- thing that is necessary to comply with or conform to any requirements of the United States government in regard to banks operatng under government supervision. We would like, however, to have a direct opinion from you as to whether' a state bank in Montana hns a right to issue debentures such as could be used with the government in this plan ·of rehabilitation." Under its general powers a hank may borrow money and become indebt- ed unless restricted or prohibited by statute or the rules and regulations of the Supeintendent of Banks. "The weight of authority is that a bank with general powers may borrow money, under an incidental and auxiliary pow- er, not. expressed, but implied from those which are eXI)t'essed." (Vol. 4, Michie-Banks and Banking, p. 55, par. 45.) Section 54, Chapter 89, Laws of 1927, has restricted the power to borrow money in excess of the bank's paid up capital and surplus, without first ob- taining written authority from the Superintendent of Banks. Section 110 id., restricts the borrowing of money except to meet the bank's seasonal re- quirements or unexpected withdrawals and practically repeats the require- ments of Section 54, supra. The phrase "seasonal requirements or unexpected withdrawals" should be liberally con- strued, particularly in times of emerg- ency. ~'he foregoing sections recognize the power of banks to borrow money with- in the restrictions named and the su- pervisory power of the Superintendent of Banks. The latter is given specific authority to permit borrowing in ex- cess of paid up capital and surplus and 234 OPIXIOXS OF THE ATTORXEY GENERAL to meet seasonal requirements or unex- pected withdrawals. It is my opinion, therefore, that it is "ithin the sound discretion of the Su- perintendent of Banks to authorize a bank to issue debentures such as could be used with the Government in its plan of rehabilitation of state banks. Ha ving such power and discretion, he may, of course, impose conditions ?n the exercise thereof, such as prescnb- ing that such debentures shall he sub- ject .to the liability to depositors, or in other words, that the liability to the holders of the debentures shall be sec- ondary and that such holders shall share in the assets of the bank after the depositors are paid in full, in case of insolvency. Certainly the exercise of such power would necessarily be a protection of the depoSitors. This is the purpose of the Federal Act, as well as the purpose of the limitations upon borrowing as expressed in the above two sections. Borrowing of money from the Federal Government subject to such reasonable conditions which would protect the depositors would amount to no more than the repairment of the capital of the bank and the protection of the depositors.