Montana Attorney General Opinion 15-541

Opinion No. 541 Banl{s and Banking-Capital Structme -Ma."imum Loans. HELD: Chapter 16, Laws of the Ex- traordinary Session, 1933-34, expressly provides that money borrowed by a hank on capital notes or debentures shall be considered as part of the cap- ital structure for the purpose of deter- minill~ the maximum amount of loans. June 1, 1934. You have submitted the following question: "'Ve have recently permitted the state hnnks in Montana to issue so- called "capital notes" and "deben- tures" over-long periods of time which are subordinated to the claims of com- mon stockholders. The question has arisen whether these debentures are a pal·t of the capital structure and thereby _ within the legal loan limit, or whether they are merely borrowed money. We realize, of course, that, a preferred stock issue could be classed as stock but a debenture issue is not an issue in which the articles of agreement of a bank are changed and therefore we want to ascertain from your office as to the exact status of the debent,ures :in the question of capital structure." Chapter 1(;, I,aws of the Extraordi- nary Session, 1933-34, in its title au- thorizes banks "to issue and negotiate capital notes or debentmes and to bor- row money for capital purposes, and fixing the status of such capital." ~'he concluding sentence of Section 1 reads as follows: "~'he amount of money so horrowed shall be considered as cap- ital for the purpose of determining the maximum amount of money that may he loaned by such bunk, savings bank, trust company or investment company to any person, co-partnership or cor- poration, and for the purpose of de- termining the maximum amount of money which such bank may borrow, and for all other purposes of bank capital as may be required by law." In view of the express declaration of the Legislature, it is my opinion that the notes and debentures issued by hanks should he considered a part of the capital structure of banks within the meaning of Section 44 of Chapter 89, Laws of 1927, limiting loans to twenty per centum (20%) of the amount of the unimpaired capital and surplus of the bank.