Could a weakly capitalized Connecticut bank replace withdrawn municipal deposits with new public deposits?

Plain-English summary

Connecticut law allowed municipal and school-district officials to deposit public money in qualified public depositories. It also prohibited a depository whose net-worth-to-assets ratio fell below three percent from accepting “additional public deposits.” The Banking Commissioner asked whether that meant no new deposits at all, or merely no increase beyond the total held when the ratio first fell below the threshold.

The Attorney General adopted the broader prohibition: the depository could accept no further public deposits while its ratio stayed below three percent. A withdrawal by a municipality did not create a slot that the bank could refill with another public deposit. Once the ratio rose to at least three percent, the opinion said the prohibition ended.

The opinion read “additional” in its ordinary sense as any further deposit. It also compared another part of the same statute, which expressly set an aggregate deposit limit tied to a bank's capital and reserves. The legislature knew how to state an aggregate ceiling, but used an unqualified ban in the low-ratio subsection. The opinion therefore rejected the proposed replacement-deposit interpretation.

Currency note

This opinion was issued in 1990. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical summary

For public depositories: The opinion treated the below-three-percent rule as a blanket stop on accepting new municipal or school-district money, regardless of withdrawals from existing accounts.

For municipal and school-district officials: The opinion distinguished the low-ratio prohibition from the statute's separate aggregate limit on how much an official could place with one depository. The two restrictions used different language and served different calculations.

For banking regulators: The opinion said the ban stayed in place until the depository's net-worth-to-assets ratio reached at least three percent; it did not reset based on the balance of public deposits held.

Common questions

Could a bank below the threshold accept a new public deposit after another public depositor withdrew money?

No. The Attorney General said the statute contained no replacement-deposit exception.

Did the bank have to exceed its old total before the ban applied?

No. The opinion rejected a ceiling based on the aggregate public deposits held on the date the ratio dropped. “Additional” meant any further public deposit.

When could the bank accept public deposits again under the opinion?

When its net-worth-to-assets ratio rose to at least three percent. That was the threshold stated in the statute as the opinion read it in 1990.

Background and statutory framework

Conn. Gen. Stat. e 7-402 governed public funds deposited by municipal and school-district officials. One clause limited the aggregate deposits in a single qualified public depository relative to its capital, general loss reserve, surplus, and undivided profits. Subsection (b) separately prohibited additional public deposits when the depository's net-worth-to-assets ratio fell below three percent. The opinion found no wording in subsection (b) allowing a bank to substitute new funds for withdrawn ones. A footnote noted a virtually identical provision for state and political-subdivision deposits in Conn. Gen. Stat. e 4-33.

Citations and references

The opinion quotes Conn. Gen. Stat. e 7-402 and interprets subsection (b). It also cites Conn. Gen. Stat. e 4-33 in a footnote. The official HTML renders some section symbols as “e”; the original text below preserves that rendering.

Source

• Landing page: https://portal.ct.gov/AG/Opinions
• Opinion page: https://portal.ct.gov/ag/opinions/1990-formal-opinions/honorable-howard-b-brown-department-of-banking-1990022-formal-opinion-attorney-general-of-connecticu

Original opinion text

Honorable Howard B. Brown, Department of Banking, 1990-022 Formal Opinion, Attorney General of Connecticut

Attorney General's Opinion

Attorney General, Richard Blumenthal

June 25, 1990

Honorable Howard B. Brown

Department of Banking

44 Capitol Avenue

Hartford, CT 06106

Dear Commissioner Brown:

You have requested our advice concerning the meaning of a provision within Conn. Gen. Stat. e 7-402, which relates to the deposit of public money and trust funds by municipalities and school districts. Section 7-402 provides in pertinent part:

Deposit of public money and trust funds. Any public official of any municipality or school district is authorized to deposit any funds or moneys in his hands belonging to such municipality or district, or held by him as such official or as a trustee, in any qualified public depository, as defined in section 36-382 ... provided such deposit shall only be made in his name as such official or trustee or in the name of the municipality or school district to which the money belongs. In no case shall the deposit by such official in any one such qualified public depository exceed in the aggregate at any one time seventy-five per cent of the capital, general loss reserve, surplus and undivided profits of such depository, provided: (a) Any such qualified public depository is required to disclose such information relating to public deposits as the commissioner of banking may require by regulations which he shall adopt in accordance with the provisions of chapter 54. The regulations shall include, but not be limited to disclosure of the most current quarterly statement of condition and statement of income; (b) any such public depository whose ratio of net worth to assets falls below three per cent is prohibited from accepting additional public deposits ....1

Specifically, you have inquired whether subsection (b) imposes a blanket prohibition on acceptance of all additional public deposits until the depository's ratio of net worth to assets rises to at least three percent, or whether subsection (b) only prohibits the acceptance of such additional public deposits as would exceed the aggregate amount of public deposits held on the date that the depository's ratio fell below three percent. Under the latter alternative, if withdrawals are made from municipalities' accounts after the depository's ratio falls below three percent, the public depository would be permitted to accept additional deposits of public funds up to the aggregate amount of public deposits held as of the date the ratio fell below three percent.

It is our opinion that Conn. Gen. Stat. e 7-402(b) imposes a blanket prohibition on the acceptance of any further public deposits by a public depository whose ratio of net worth to assets falls below three percent. The prohibition would remain in place until such time as the depository's ratio of net worth to assets rises to at least three percent, at which time further public deposits could be accepted.

When words or phrases are not defined within a statute, under Section 1-1 of the General Statutes, "words and phrases shall be construed according to the commonly approved usage of the language." The phrase "public deposits" used in subsection (b) is not defined in Conn. Gen. Stat. e 7-402. However, in banking law, "deposit" is defined as "the act of placing or lodging money in the custody of a bank or banker, for safety or convenience, to be withdrawn at the will of the depositor or under rules and regulations agreed on. Also, the money so deposited." Black's Law Dictionary 527 (4th ed. 1968). One purpose of e 7-402 is to authorize municipalities and school districts to place their funds for safekeeping with qualified public depositories. The funds of such municipalities and school districts are clearly the "public deposits" referred to in subsection (b).

In common usage, the word "additional" means "existing or coming by way of addition; added, further." Webster's Third International Dictionary (1981). The plain meaning of e 7-402(b) is to prohibit public depositories whose net worth to assets ratio falls below three percent from accepting any further public funds from municipalities and school districts.2

The alternative construction of this provision referred to in your letter is not supported by the language of the statute. Once a bank's ratio falls below three percent, the prohibition on acceptance of additional deposits is not a qualified prohibition; that is, the statute does not set forth exceptions to the prohibition. The statute does not state that the prohibition applies only to further deposits of public funds which exceed the aggregate of such funds held on the date that the depository's ratio fell below three percent. It does not state that if public funds are withdrawn, the depository may accept additional public funds in substitution for those withdrawn. Finally, "additional public deposits" is not defined as those deposits which exceed the aggregate amount of all public deposits held on the date the depository's ratio fell below three percent. Absent such a definition, the words of the statute must be construed according to their ordinary meaning.

It is noteworthy that the concept of an aggregate amount of funds held on a particular date is embodied in this statute. The statute prohibits any municipality from placing deposits in any one public depository in an amount which "exceed[s] in the aggregate at any one time seventy-five percent of the capital, general loss reserve, surplus and undivided profits of such depository." Had the legislature intended to frame similarly the prohibition on acceptance of additional public deposits, it would have so stated.

It is our opinion, therefore, that subsection (b) of e 7-402 imposes a blanket, unqualified prohibition on the acceptance of further public deposits by a depository whose ratio of net worth to assets falls below three percent which remains in place until such time as the depository's ratio rises to at least three percent.

Very truly yours,

CLARINE NARDI RIDDLE

ATTORNEY GENERAL

Shelagh P. McClure

Assistant Attorney General

CNR/SPM/db

1 A virtually identical provision exists regarding deposits of funds of the State and of political subdivisions. See Conn. Gen. Stat. e 4-33.

2 Although it is not necessary to refer to legislative history when the words of the statute are unambiguous, here, the legislative history does not support an interpretation of subsection (b) that would allow additional public deposits under the circumstances outlined in your letter. See H.R. Proc. 7368 (June 1, 1983) (Remarks of Rep. Onorato).