Does a member of the NC State Banking Commission lose their seat if, during their term, they change from being a 'practical banker' to being a non-banker (or vice versa)?

Plain-English summary

North Carolina's Commissioner of Banks asked whether two kinds of midterm changes disqualified members of the State Banking Commission: a practical banker leaving bank employment for a reason other than retirement, or a public member becoming a director or employee of a financial institution or acquiring an interest above the statutory limit. The AG concluded that either change disqualified the member from further service.

G.S. §53-92 prescribed seats for practical bankers and representatives of the borrowing public. The opinion says the required balance would be lost if a member moved from one class to another. It also cites a general, but not universal rule that eligibility for public office must continue during the term. For public members, the opinion discussed divided loyalty and self-interest when a member became affiliated with a financial institution or acquired a substantial financial stake.

The definition of “practical banker” in G.S. §53-1(5) included a banker retired from the relevant duties. The AG therefore distinguished retirement from another end to a banker's connection with a bank. The opinion did not decide how a vacancy would be filled or extend its conclusion to every board with class-based seats.

Currency note

The opinion interprets Banking Commission membership law as it stood in 1993. Check the current statute and the member's circumstances for a present qualification question.

Background and statutory framework

The opinion quotes the then-current composition of the Commission: the State Treasurer, 12 members appointed by the Governor, and two appointed by the General Assembly. Of the Governor's appointees, five were practical bankers and seven represented the borrowing public; the legislature's two appointments were allocated one to each class. Public members could not be directors or employees of a financial institution or have a regulated interest beyond the statutory allowance. The quoted statute excluded an interest of no more than one-half of one percent of a financial institution's capital stock from that disqualification.

The AG acknowledged that no case was directly on point and that it could not predict with certainty how North Carolina courts would rule. It relied on the continuing-eligibility principle, cases addressing public officials' duties, and the specific statutory balance. Its final answer was limited to the two status changes described in the request.

Common questions

Does a practical banker who retires lose the Banking Commission seat under this opinion?

The AG's disqualification answer covered a practical banker who ceased a bank connection other than by retirement. The quoted definition expressly included a banker retired from the relevant duties.

What happens if a public member becomes a financial institution director or employee?

The AG concluded that the member is disqualified from further service. It gave the same answer if the member acquired a financial interest exceeding the statutory limit.

Does this opinion decide the qualifications of a replacement?

No. It explains why the statute's balance between the two classes matters but does not address an appointment to fill a vacancy.

Does this rule automatically apply to every North Carolina board?

The opinion describes continuing eligibility as a general rule, while acknowledging exceptions, and decides the question under the Banking Commission statute. Another board's qualifications would require its own analysis.

Source

• Landing page: https://ncdoj.gov/opinions/disqualification-of-members-of-the-state-banking-commission-during-incumbency/

Original opinion text

March 1, 1993

Honorable William T. Graham
Commissioner of Banks
Dobbs Building
430 North Salisbury Street
Raleigh, North Carolina

Re: Attorney General's Opinion – Disqualification of Members of the State Banking Commission During Incumbency; N.C.G.S. §53-92

Dear Commissioner Graham:

You have requested an opinion whether a practical banker member of the State Banking Commission who ceases to be a bank officer or employee for reasons other than retirement or a public member of the Commission who becomes a director or employee of a financial institution or acquires an interest in a financial institution in excess of that permitted by applicable law is disqualified for service on the Commission. The qualifications for members of the State Banking Commission are set out in G.S. §53-92, which reads, in pertinent part, as follows:

The State Banking Commission…shall consist of the State Treasurer, who shall serve as an ex officio member thereof, 12 members appointed by the Governor, and two members appointed by the General Assembly….The Governor shall appoint five practical bankers and seven persons selected primarily as representatives of the borrowing public. The person appointed by the General Assembly upon the recommendation of the President of the Senate shall be a practical banker. The person appointed by the General Assembly upon the recommendation of the Speaker of the House shall be a person selected primarily as a representative of the borrowing public. The persons selected primarily as representatives of the borrowing public shall not be employees or directors of any financial institution nor shall they have any interest in any regulated financial institution other than as a result of being a depositor or borrower. Under this section, no person shall be considered to have an interest in a financial institution whose interest in any financial institution does not exceed one-half of one percent (1/2 of 1%) of the capital stock of that financial institution. These members of the Commission shall be selected so as to fully represent the consumer, industrial, manufacturing, professional, business and farming interests of the State.

The term "practical banker" is defined in G.S. §53-1(5) as:

[A]n officer or employee of a bank actively engaged in performing duties in managing or supervising or assisting in managing or supervising the conducting of a banking business, including any such banker who is in a retired status from such duties.

We have found no cases which are directly in point, and we cannot state with certainty how the courts of this State might rule if presented with the issue. The general, but no universal, rule is stated in 63A Am Jur 2d Public Officers and Employees §42 (1984), as follows:

Eligibility to a public office is of a continuing nature and must exist at the commencement of the term and during the occupancy of the office. The fact that the candidate may have been qualified at the time of his election is not sufficient to entitle him to hold the office, if at the commencement of the term or during the continuance of the incumbency, he ceases to be qualified.

Section IV of an Annotation in 88 A.L.R. is to the same effect. To the extent that there is authority in this State, it appears to be in accord. Dalby v. Hancock, 125 N.C. 325, 34 S.E. 516 (1899), reversed on other gnds., Mial v. Ellington, 134 N.C. 131, 46 S.E. 961 (1903) (one who is elected under a statute requiring that the candidate be a resident of the county from which elected loses his eligibility for the office if he ceases to be a resident of the county).

We consider it appropriate, next, to consider the question of potential self-interest or conflict of interest, particularly with regard to public members of the Commission who, during their incumbency, become affiliated with a financial institution or acquire a financial interest in a financial institution in excess of that which is statutorily permissible. The Supreme Court, considering the constitutionality of a statute prohibiting railroad commissioners from having any interest in a railroad company, stated, in language we believe is equally applicable to any regulatory agency, that "the people have a right to require that the men charged with the grave duty of deciding between them and the great transportation companies which practically control the commerce of the country should be absolutely free from the slightest suspicion of interest or bias. Such a requirement is based upon the highest principle of public policy…." Caldwell v. Wilson, 121 N.C. 425 at 460, 28 S.E. 554 (1897). The Court stated subsequently in the opinion that the statutory provisions were "intended not to restrict the rights of the individual, but to secure the faithful and efficient performance of public duties." Id. page 470. The Court stated, in the later case of Re Advisory Opinion in re Constitutionality House Bill No. 276, 227 N.C. 705 at 707, 41 S.E.2d 749 (1947), that, "[i]t has long been a rule of general observance that self-interest disqualifies one from acting in a public capacity where unbiased judgment is required."

Public officials stand in a fiduciary capacity to the public whom they serve, MacDonald v. University of North Carolina, 299 N.C. 457, 263 S.E.2d 578, reh. denied, 300 N.C. 380 (1980), and it is axiomatic that public officials must discharge their duties with undivided loyalty. 63A Am. Jur. 2d Public Officers and Employees §317 (1984). The Legislature has directed that the public members of the Commission shall represent the interests of all segments of the borrowing public. G.S. §53-92. If a public member becomes a director of employee of a financial institution, he clearly owes a duty of loyalty and stands in a fiduciary relationship to the financial institution. If a public member acquires a substantial financial interest in a financial institution, the spectra of self-interest arises. Whether it is a question of divided loyalties or one of self-interest, it is our opinion that such a change in the status of an incumbent member of the Commission would disqualify him from further service.

Finally, we look to the language of G.S. §53-92. It is clear that the General Assembly intended that the State Banking Commission should be comprised of a specified number of members of two different classes, one to represent the interests an possess expertise in the operations of the banking industry in this State, and the other to represent the interests of all segments of the borrowing public. If an incumbent member passes from one class to the other, the balance intended by the General Assembly is lost, and the statutory mandate is violated.

It is our opinion, based upon the foregoing discussion, that if a practical banker member of the State Banking Commission ceases his connection with a bank other than by retirement, he is disqualified from further service on the Commission. By the same token, if a public member becomes a director or employee of a financial institution or if he acquires a financial interest in such an institution in excess of the statutory limit, he, too, is disqualified from further service on the Commission.

If you have any questions or comments concerning this opinion, please feel free to contact us.

Ann Reed
Senior Deputy Attorney General

Henry T. Rosser
Special Deputy Attorney General