Can a Texas city council choose a bank as its depository when most council members own stock in that bank?

Texas AG Opinion JM-29: City Bank Depository Rules

Plain-English summary

A county attorney asked whether a general law city could sign a depository contract with a bank when a majority of the city council members owned stock in that bank. JM-29 said no.

The depository statute, article 2529c, lets a bank with officer, director, or stockholder ties to the selecting body still serve as depository, but only within limits. Those with an ownership interest cannot vote on it, and the bank must still be chosen by a majority of the whole body.

"The statute requires that a depository bank be selected by the vote of a majority of board members. All stockholders in a bank are disqualified from voting in favor of it. On the facts you present, a majority of the council members were disqualified from voting to choose as depository the bank in which they owned stock. Thus, the action taken by the city council members is manifestly in violation of the statute."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0029.pdf

Because the disqualified stockholder-members made up a majority, there could be no valid majority vote without them, so the contract could not be formed.

Currency note

This opinion was issued in 1983. 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.

Common questions

Does any stock ownership disqualify a bank from being the depository?

No. The statute tolerates limited ownership ties, but a member with an interest may not vote or participate, and the depository still needs a majority vote of the body.

"provided, however, that said bank must be selected as the depository by a majority vote of the members of the board, commission, or other body of such agency or political subdivision and no member thereof who is an officer, director or stockholder of the bank shall vote or participate in the proceedings."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0029.pdf

Did the opinion decide whether anyone committed official misconduct?

No. The request also raised the Penal Code's official-misconduct provision, but the opinion declined to reach it because it depended on disputed facts.

"Because a determination of whether section 39.01 has been violated in this instance necessarily requires the resolution of disputed matters of fact, we will not address that issue in this opinion."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0029.pdf

Background and statutory framework

Article 2529c governed how state agencies and political subdivisions select and qualify their depositories. Its section 2 allowed a bank to serve as depository despite limited ownership ties (no more than 10 percent of outstanding stock held by members of the selecting body), but conditioned that on a majority vote and on the interested member not voting or participating. The request also cited article 988 and section 39.01 of the Penal Code.

Holding

"The city council of a general law city is prohibited by article 2529c, V.T.C.S., from entering into a depository contract with a bank when a majority of the city council members are stockholders in that bank."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0029.pdf

Citations and references

Statutes discussed by JM-29:

• "article 2529c, V.T.C.S." Official PDF
• "article 988, V.T.C.S." Official PDF
• "section 39.01 of the Penal Code" Official PDF

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0029
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0029.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain. The linked PDF is authoritative.

The Attorney General of Texas

JIM MATTOX
Attorney General

May 5, 1983

Honorable Warren New
Yoakum County Attorney
P. O. Box 359
Plains, Texas 79355

Opinion No. JM-29

Re: Whether article 2529c, V.T.C.S., authorizes a city to contract with a depository bank when a majority of the city council members are stockholders in the bank

Dear Mr. New:

You ask whether the city council of a general law city is prohibited from entering into a depository contract with a bank when a majority of the city council members are stockholders in that depository bank. We conclude that, in the situation you describe, the city council of a general law city is prohibited from entering into such a contract.

You suggest that, by entering into the contract, the city council has violated articles 2529c and 988, V.T.C.S., as well as section 39.01 of the Penal Code. Article 2529c, V.T.C.S., governs the selection and qualification of depositories of state agencies and political subdivisions; it will be discussed later. Section 39.01 of the Penal Code provides that a public servant commits an offense if he knowingly or intentionally engages in official misconduct. Because a determination of whether section 39.01 has been violated in this instance necessarily requires the resolution of disputed matters of fact, we will not address that issue in this opinion.

Article 2529c, V.T.C.S., governs the selection and qualification of depositories of state agencies and political subdivisions and provides at section 2 the following in pertinent part:

A bank shall not be disqualified from bidding and becoming the depository for any agency or political subdivision of the state by reason of having one or more officers, directors or stockholders of said bank who individually or collectively own or have a beneficial interest in not more than 10 percent of the bank's outstanding capital stock, and at the same time serves as a member of the board, commission, or other body charged by law with the duty of selecting the depository of such state agency or political subdivision; provided, however, that said bank must be selected as the depository by a majority vote of the members of the board, commission, or other body of such agency or political subdivision and no member thereof who is an officer, director or stockholder of the bank shall vote or participate in the proceedings. (Emphasis added).

The statute requires that a depository bank be selected by the vote of a majority of board members. All stockholders in a bank are disqualified from voting in favor of it. On the facts you present, a majority of the council members were disqualified from voting to choose as depository the bank in which they owned stock. Thus, the action taken by the city council members is manifestly in violation of the statute.

We therefore conclude that the city council of a general law city is prohibited by article 2529c, V.T.C.S., from entering into a depository contract with a bank when a majority of the city council members are stockholders in that bank.

SUMMARY

The city council of a general law city is prohibited by article 2529c, V.T.C.S., from entering into a depository contract with a bank when a majority of the city council members are stockholders in that bank.

Very truly yours,

JIM MATTOX
Attorney General of Texas

TOM GREEN
First Assistant Attorney General

DAVID R. RICHARDS
Executive Assistant Attorney General

Prepared by Jim Moellinger
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Susan L. Garrison, Chairman
Jon Bible
Rick Gilpin
Jim Moellinger
Charmaine Rhodes
Nancy Sutton