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

Commissioner of Banks William Graham asked AG Michael Easley a clean structural question. NC's State Banking Commission has a balanced membership under G.S. 53-92: some seats reserved for "practical bankers" (defined as officers or employees of banks, including retirees), and other seats reserved for "public members" who must not be employed by or have a substantial interest in any financial institution.

What happens if a practical-banker member quits banking mid-term (not by retirement)? Or a public member becomes a bank director, employee, or significant shareholder mid-term? Are they disqualified, or do they keep the seat?

The AG said they are disqualified. The reasoning had three parts.

First, eligibility for public office is generally a continuing requirement, not just a snapshot at the time of appointment. The general rule from American Jurisprudence is that "[e]ligibility 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." NC case law (Dalby v. Hancock from 1899) is consistent: a person elected as a county-resident representative loses eligibility if they move out of the county.

Second, regulatory commissions have special public-policy concerns about ongoing independence. Caldwell v. Wilson (1897), addressing a statute that barred railroad commissioners from having any interest in a railroad, said the people have a right to require regulators to be "absolutely free from the slightest suspicion of interest or bias." The Banking Commission is exactly that kind of regulator: it sets rules for the institutions whose officers and employees would otherwise want favorable treatment. A public member who becomes a bank director immediately acquires a divided loyalty (fiduciary duty to the bank vs. duty to represent the borrowing public). A practical-banker member who stops working for a bank loses the operational expertise the statute requires them to bring.

Third, the legislature's design intent matters. G.S. 53-92 specifies the exact composition: 5 practical bankers and 7 public members appointed by the Governor, plus one of each appointed by the General Assembly, plus the State Treasurer ex officio. The balance is deliberate. If members can switch classes mid-term and keep their seats, the legislative balance is destroyed.

The practical consequence: a member whose class status changes must vacate the seat, and the appointing authority must fill the vacancy with someone of the same class. The retirement exception in the "practical banker" definition (G.S. 53-1(5)) is the only built-in tolerance for class transition; a banker who retires from banking still counts as a practical banker for purposes of Commission service.

The opinion is short but its principle reaches well beyond banking. Any NC public body whose statute reserves seats for specific classes (consumer representatives, industry representatives, geographic representatives, etc.) faces the same analysis: class-based qualifications are continuing, and a member who changes class is disqualified.

Currency note

This opinion was issued in 1993. 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. G.S. 53-92 has been amended several times since 1993, including changes to the Commission's composition. Anyone with a current question about Commission qualifications should consult the current statute and any current State Banking Commission rules and AG opinions on the subject.

Background and statutory framework

NC's State Banking Commission regulates state-chartered banks and related financial institutions. G.S. 53-92 sets the Commission's composition. As it stood in 1993, the Commission had the State Treasurer ex officio plus 14 appointed members: 12 appointed by the Governor (5 practical bankers, 7 public members) and 2 appointed by the General Assembly (1 practical banker recommended by the President of the Senate, 1 public member recommended by the Speaker of the House).

The "public members" are subject to specific limits: they may not be employees or directors of any financial institution, and they cannot have an interest in any regulated financial institution beyond being a depositor or borrower (with a 0.5% capital-stock de minimis allowance). They are intended to represent the consumer, industrial, manufacturing, professional, business, and farming interests of the State.

The "practical banker" category is defined in G.S. 53-1(5) as an 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. The definition includes retired bankers. The retirement carve-out matters because, without it, a banker who reached retirement age and stopped working would automatically lose their Commission seat. The legislature decided that retired bankers retain the operational knowledge the role requires, so they stay qualified.

The continuing-qualifications principle is well-established in public-office law. The general rule, as the AG quoted from 63A Am Jur 2d, is that eligibility is continuing: it must exist at the commencement of the term and throughout the occupancy. A candidate who qualified at the time of election is not entitled to hold office if they later become disqualified. NC case law follows this: Dalby v. Hancock (1899, reversed on other grounds in Mial v. Ellington) held that a county-resident requirement was continuing, and a person who moved out of the county lost the office.

The AG also reached for the regulatory-independence cases. Caldwell v. Wilson (1897) addressed the constitutionality of a statute prohibiting railroad commissioners from owning any interest in a railroad company. The Supreme Court upheld the statute, observing 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." The Court emphasized that the statute was not a restriction on the individual's rights but a measure to secure faithful and efficient performance of public duties. The 1947 Advisory Opinion in re Constitutionality House Bill No. 276 reiterated: "[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."

The AG then layered the fiduciary-duty framework. MacDonald v. University of North Carolina (1980) held that public officials stand in a fiduciary capacity to the public they serve. Public officials must discharge their duties with undivided loyalty. A public member of the Banking Commission who becomes a bank director or employee owes a fiduciary duty to the bank, which directly conflicts with the duty to represent the borrowing public. A public member who acquires a substantial financial interest in a financial institution has self-interest that conflicts with the regulatory duty.

The statutory structure of G.S. 53-92 reinforces all of this. The class balance is the legislative design. If a public member switches to the practical-banker side mid-term, the class balance shifts and the statute's mandate is violated. The same is true if a practical-banker member switches to the public-member side (by leaving banking other than through retirement). The continuing-qualifications principle is what enforces the statutory balance.

The opinion did not address the procedural mechanics of removal (who decides, what process applies). Those questions would depend on G.S. 53-92's removal provisions and general administrative-law principles. The opinion only confirmed the substantive principle: the member is disqualified, and the seat is vacant.

Common questions

Does this rule apply to all NC commission members, or just the Banking Commission?

The principle is general. Any NC public body whose statute reserves seats for specific classes (industry representatives, consumer representatives, geographic representatives, etc.) follows the continuing-qualifications principle: a member who changes class during their term loses the seat. The specifics depend on each statute, but the underlying principle (eligibility is continuing) is the same.

What about retired bankers?

G.S. 53-1(5) explicitly includes retired bankers in the "practical banker" definition. So a member who retires from active banking still qualifies as a practical banker for Commission purposes. The retirement carve-out is the legislature's built-in tolerance for one specific kind of class transition.

How big does a public member's bank interest have to be before they are disqualified?

Under G.S. 53-92, the de minimis threshold is 0.5% of the bank's capital stock. A public member can hold up to that amount in any one financial institution. Acquiring more than that amount triggers disqualification. The threshold is per-institution, not aggregate across all financial institutions.

What happens when a member is disqualified?

The seat becomes vacant. The appointing authority (Governor or General Assembly, depending on the seat) must appoint a replacement of the same class for the remainder of the unexpired term. The replacement does not need to be a "practical banker" or "public member" depending on the seat being filled.

What if a member is alleged to be disqualified but disputes it?

The opinion does not address procedural disputes. Removal mechanics would depend on G.S. 53-92's removal provisions, general administrative-law principles, and any case law on quo warranto or similar proceedings. A disputed disqualification could potentially be resolved through litigation if the appointing authority and the member disagreed.

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