Can a North Carolina bank organized under Chapter 53 own the shares of a nondepository trust company, on the theory that a nondepository trust company is not a 'bank' under G.S. 53-47's prohibition on a bank owning another bank?

Plain-English summary

Commissioner of Banks William T. Graham asked the AG to revisit a 1992 opinion (by Special Deputy AG Henry T. Rosser) that had concluded a bank could not own the shares of a nondepository trust company. The Commissioner narrowed the question to whether a nondepository trust company, organized as a special or limited-purpose bank under G.S. § 53-2, counts as a "bank" for purposes of G.S. § 53-47. G.S. § 53-47 permits a bank to establish operating subsidiaries but prohibits it from "any investment in the capital of any other state or national bank."

Senior Deputy AG Ann Reed and Assistant AG L. McNeil Chestnut said the answer turns on the statutory history of G.S. § 53-1(1), the definition section. They confirmed the 1992 conclusion: a bank may not own a nondepository trust company.

The bank had submitted a memorandum of law arguing that because a nondepository trust company does not accept deposits, it is not a "bank" under the deposit-taking definition. The AG agreed that the deposit-taking text of G.S. § 53-1(1) was the natural starting point, but said the memorandum overlooked the statute's history. As originally enacted in 1921, G.S. § 53-1(1) defined "bank" as a corporation "receiving, soliciting, or accepting money or its equivalent on deposit as a business" and expressly carved out "building and loan associations, Morris plan companies, industrial banks or trust companies not receiving money on deposit." In 1945, the General Assembly rewrote the definition by H.B. 734 to read: "any corporation, other than building and loan associations, industrial banks, and credit unions, receiving, soliciting, or accepting money or its equivalent on deposit as a business." The nondepository-trust-company exception was removed.

Applying ordinary canons of statutory construction, the AG concluded the 1945 deletion was deliberate: the General Assembly intended to broaden the definition of "bank" to reach nondepository trust companies. Once a nondepository trust company falls within the statutory definition of "bank," G.S. § 53-47's bar on a bank investing in another bank applies. So a Chapter 53 bank that wants to offer trust services cannot do so by acquiring or owning the shares of a nondepository trust company through an operating subsidiary.

The opinion is short and turns almost entirely on the statutory-history canon. The bank's argument leaned on the present text alone; the AG's answer was that the present text has to be read in light of what the General Assembly removed.

Currency note

This opinion was issued in 1994. 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.

NC banking law has been substantially restructured since 1994, and federal banking law (Gramm-Leach-Bliley, Dodd-Frank) has reshaped what bank holding companies and national bank operating subsidiaries can do. The 1994 opinion's specific conclusion about state-chartered bank ownership of a nondepository trust company should be verified against current Chapter 53, any successor provisions, federal banking-law permissibility, and current Office of the Commissioner of Banks interpretive letters before being relied on. The statutory-history canon used here is still good NC law.

Common questions

Q: What is a "nondepository trust company"?
A: It is a trust company that provides trust services (acting as trustee, executor, custodian, investment manager) but does not accept deposits from the public. Depository institutions hold customer deposits; trust companies hold property in fiduciary capacities. A nondepository trust company organized as a special-purpose bank under G.S. § 53-2 is regulated as a bank because it is chartered under Chapter 53, even though it does not take deposits.

Q: Why did the bank want to own a nondepository trust company?
A: To offer trust services through a subsidiary while keeping trust-company liability and operations walled off from the bank's deposit-taking business. G.S. § 53-47 permits banks to establish "operating subsidiaries," but it also bars investment in the capital of any other bank. The bank's argument was that a nondepository trust company is not a "bank" for the bar, so it could be an operating subsidiary.

Q: How did the 1945 amendment change the definition?
A: Before 1945, "bank" expressly excluded "trust companies not receiving money on deposit." After 1945, that exception was removed. The new definition excluded only building and loan associations, industrial banks, and credit unions. The natural inference is that the General Assembly meant to bring nondepository trust companies inside the definition of "bank" for purposes of Chapter 53.

Q: What is the statutory-history canon the AG relied on?
A: A core principle of statutory construction: when the legislature amends a statute, it is presumed to have intended either to change the substance or to clarify the meaning of the original. A deletion of an exception is presumed to enlarge the rule. So removing the "trust companies not receiving money on deposit" carve-out is presumed to enlarge what counts as a "bank." The amended statute is then read as if it had always read that way from its date of adoption.

Q: Does this mean a bank in NC can never offer trust services?
A: No. The opinion addresses only one structural path, ownership of a separately chartered nondepository trust company. A NC bank may offer trust services directly through its own trust department under other provisions of Chapter 53, subject to the Commissioner of Banks' supervisory requirements. The opinion does not foreclose direct trust powers; it forecloses the operating-subsidiary structure for trust services.

Background and statutory framework

NC's banking law has roots in Chapter 4 of the 1921 Session Laws, which became Chapter 53 of the General Statutes. From the start, the law drew a line between deposit-taking institutions ("banks") and other financial entities (building and loan associations, industrial banks, trust companies). The 1945 amendment narrowed the exceptions. Industrial banks and building and loan associations remained outside the definition; nondepository trust companies were brought inside.

G.S. § 53-47 reflects the General Assembly's longstanding policy against banks owning other banks (cross-bank ownership). The provision allows operating subsidiaries (so a bank can run, say, a mortgage-servicing arm in a subsidiary) but draws the line at investments in the capital of another bank. The policy concern is concentration of banking power and the systemic risk of bank cross-holdings.

The 1994 opinion is a useful primer on how a definition section can quietly do most of the substantive work. The Commissioner asked about G.S. § 53-47, but the AG's answer turned on the meaning of "bank" in G.S. § 53-1(1). Whether a particular structure is permitted often comes down to whether the entity in question fits a defined term, and whether that defined term has been silently broadened (or narrowed) by amendment in a way the present text does not advertise.

Citations

• G.S. § 53-1(1) (defines "bank" for Chapter 53; 1945 amendment removed prior exception for nondepository trust companies)
• G.S. § 53-2 (special or limited purpose banks; chartering authority for nondepository trust companies)
• G.S. § 53-47 (operating subsidiaries; prohibition on bank investment in capital of any other state or national bank)
• 1921 Sess. Laws, ch. 4, § 1 (original definition with trust-company exception)
• 1945 Sess. Laws, ch. 743, § 1 (H.B. 734; removed trust-company exception)

Source

• Landing page: https://ncdoj.gov/opinions/authority-of-a-bank-to-own-the-shares-of-a-nondepository-trust-company/

Original opinion text

August 9, 1994

The Honorable William T. Graham
Commissioner of Banks
Post Office Box 29512
Raleigh, NC 27626-0512

Re: Advisory Opinion — Authority of a Bank to own the Shares of a Nondepository Trust Company (G.S. § 53-47)

Dear Commissioner Graham:

You have asked us to revisit the question of whether or not a bank, organized under Chapter 53 of the North Carolina General Statutes, may, pursuant to G.S. § 53-47, own the shares of a nondepository trust company. As you know, Special Deputy Attorney General Henry T. Rosser, in an opinion letter dated October 7, 1992, concluded that a bank could not own such a trust company.

You have, however, asked us to focus on the more narrow question of whether a nondepository trust company, which we understand is organized as a special or limited purposes bank under G.S. § 53-2, is considered a bank for the purpose of interpreting G.S. § 53-47. You indicated that a bank would prefer to offer its trust services through an operating subsidiary under the latter provision of law. For the reasons set forth below, we confirm our earlier conclusion that a bank may not own a nondepository trust company.

DISCUSSION OF THE LEGAL ISSUE

The statutes in question are G.S. §§ 53-1(1) and 53-47. G.S. § 53-1(1) defines a bank as any corporation ". . . . receiving, soliciting, or accepting money or its equivalent on deposit as a business." Banks may, under G.S. § 53-47, establish operating subsidiaries but are prohibited from making ". . . any investment in the capital of any other state or national bank. . . ."

You provided us with a memorandum of law from a private law firm which concentrated on the deposit taking functions of a bank and concluded that, because a nondepository trust company does not accept deposits, it is not a bank. Therefore, the G.S. § 53-47 prohibition against a bank owning another bank does not apply and thus a bank may own a nondepository trust company. While the memorandum appears to offer a persuasive argument that the term "bank" does not, for the purposes of G.S. § 53-47, include a nondepository trust company, it failed to take into account the statutory history of G.S. § 53-1(1) which, in our view, is dispositive of this issue.

A. Statutory History.

The banking laws of North Carolina, Chapter 53 of the General Statutes, were enacted as Chapter 4 of the 1921 Session Laws. When originally enacted, G.S. § 53-1(1) provided as follows:

The term "bank" when used in this Act shall be construed to mean any corporation, partnership, firm, or individual receiving, soliciting, or accepting money or its equivalent on deposit as a business: Provided, however, this definition shall not be construed to include building and loan associations, Morris plan companies, industrial banks or trust companies not receiving money on deposit. (Emphasis added). 1921 Sess. Laws c.4, s.1.

It is clear from this language that the original definition of a bank did not include a nondepository trust company. However, in 1945, H.B. 734 rewrote G.S. § 53-1(1) to read: The term "bank" shall be construed to mean any corporation, other than building and loan associations, industrial banks, and credit unions, receiving, soliciting, or accepting money or its equivalent on deposit as a business. 1945 Sess. Laws c.743, s.1.

Through this amendment, the General Assembly specifically removed the exception for nondepository trust companies from the definition of a bank. This leads us to the conclusion that since the 1945 revision, the definition of a bank should be construed to include nondepository trust companies.

B. Statutory Construction

In construing a statute with reference to an amendment, it is presumed that the General Assembly intended to either (i) change the substance of the original Act or (ii) clarify its meaning. An amendment is the re-enactment of the old statute with the amendment incorporated therein, and, from the date of its adoption, the revision has the same effect as if it had been a part of the original statute. See, N.C. Index Statutes § 42 (1994). Also, a later enactment will be regarded as an exception to or qualification of an earlier statute. Id. at § 27.

The intent of the General Assembly controls the interpretation of any statute. A construction which defeats or impairs the object of a statute must be avoided if that reasonably can be done without violence to the legislative language. Where possible, the statute should be given a construction which, when practically applied, will tend to suppress that which the General Assembly intended to prevent. Id. at § 29. Finally, statutes which are in pari materi, that is, which relate or are applicable to the same subject matter, although enacted at different times, must be construed together in order to ascertain legislative intent and harmonized, if possible, to give effect to each. Id. at § 27.

CONCLUSION

Based on the statutory history of G.S. § 53-1(1), and in view of the principles of statutory construction cited above, we are clearly of the opinion that the definition of a bank should be construed to include a nondepository trust company. As G.S. § 53-47 prohibits a bank from owning the shares of another bank, we conclude that a bank organized under Chapter 53 may not own a nondepository trust company.

We trust that this addresses your questions to this office. If, however, we may be of further assistance, please do not hesitate to let us know.

Ann Reed
Senior Deputy Attorney General

L. McNeil Chestnut
Assistant Attorney General