Can Texas cities, counties, or school districts deposit their funds in savings and loan associations?

Plain-English summary

The Commissioner of the Texas Savings and Loan Department asked whether Texas governments, specifically cities, counties, independent school districts, and public universities, could deposit their funds in the demand accounts of savings and loan associations. The Attorney General said no.

The deposit authority of these entities comes from statute, and each statute lets them use a "bank." The Local Government Code defines "bank" (for both municipal and county deposits) as "a banking corporation or association or an individual banker." The Education Code's school depository and higher-education provisions use the same "bank" concept. For decades the Attorney General had read that definition not to include savings and loan associations, and had said S&Ls cannot serve as depositories for governmental entities without specific legislative authorization. Nothing had changed that. The Commissioner argued the older opinions predated the major expansion of S&L powers after 1982, pointing to federal deposit insurance, federal and state authority for S&Ls to take demand deposits, and a federal case calling a Texas-chartered S&L the functional equivalent of a state bank. The opinion had heard that argument before, in 1982, and rejected it: even if S&Ls can now perform some of the same functions as banks, that does not supply the statutory authority a government needs to deposit public funds with them. Because the Legislature had not amended the deposit statutes to add S&Ls (and a 1991 bill to do so had failed), the prior opinions stood and the answer was no.

Currency note

This opinion was issued in 1992. 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. Texas public-funds depository law has changed substantially since 1992; the depository provisions of the Local Government and Education Codes have been amended, and the statutory treatment of savings institutions as eligible depositories is different now. Verify the current depository statutes before relying on this opinion.

Background and statutory framework

Each governmental entity's deposit authority sat in a specific statute. Chapter 105 of the Local Government Code let municipalities deposit funds in banks, with section 105.001 defining "bank" as "a banking corporation or association or an individual banker." Chapter 116 let county commissioners courts contract with banks for county funds (§ 116.021), and section 116.001 defined "bank" the same way. The School Depository Act (subchapter E of chapter 23 of the Education Code) let independent school districts establish depositories, and section 23.71 required a school depository to "be a bank located in the State of Texas." Subchapter A of chapter 51 of the Education Code governed funds of certain higher-education institutions (including the University of Texas and Texas A&M systems, per sections 51.001 and 61.003), and section 51.003 let their governing boards select "one or more depositories" and deposit funds "in the depository bank or banks."

A line of prior opinions had read these "bank" terms not to include savings and loan associations: MW-531 (1982) (S&Ls cannot be hospital district depositories), M-22 (1967) (a predecessor county-depository statute, former article 2549, V.T.C.S., did not qualify an S&L), MW-272 (1980) (section 23.71's "bank" does not embrace S&Ls; S&Ls do not qualify as depositories for political subdivisions without statutory authorization), plus H-1013 (1977), H-723 (1975), and JM-42 (credit unions may not serve as school-district depositories).

The Commissioner argued these predated the post-1982 expansion of S&L powers, citing FDIC insurance under FIRREA (the federal Financial Institutions Reform, Recovery and Enforcement Act of 1989), federal and state authority for S&Ls to accept demand deposits (12 U.S.C. § 1464(b); 12 C.F.R. § 545.12; V.T.C.S. art. 852a, § 5.05, letting a state S&L do what a federal S&L may), and State of Texas v. Clarke, 690 F. Supp. 573 (W.D. Tex. 1988), which (per the brief) treated a Texas-chartered S&L as the functional equivalent of a Texas state bank. The opinion noted it had rejected a nearly identical argument in MW-534 (1982): even though such changes let S&Ls perform some bank functions, that alone did not give them the statutory authority to serve as county depositories under the predecessor statutes (articles 2544 through 2558a, V.T.C.S.). A separate brief argued the Texas Savings and Loan Act (V.T.C.S. art. 852a, § 6.14) authorized such deposits, but H-723 had held that provision, standing alone, gives no political subdivision authority to make investments unaffected by other legal restrictions. The controlling principle was that express legislative authorization is required, the Legislature had not provided it, and a 1991 attempt (H.B. 1572, 72d Leg.) had failed. So the prior opinions remained valid.

Common questions

Why can't a city or county just deposit funds in a savings and loan?
Because the deposit statutes let these entities use a "bank," defined as a banking corporation or association or an individual banker, and the Attorney General had long read that definition not to include savings and loan associations. Without express legislative authorization, an S&L cannot serve as a depository for these governmental funds.

Didn't the expansion of S&L powers after 1982 change this?
No. The opinion acknowledged that federal and state law gave S&Ls broader, more bank-like powers (including demand deposits and FDIC insurance), but held that letting an S&L perform bank functions is not the same as authorizing a government to deposit public funds there. That still required a legislative change, which had not happened.

Which governments did this opinion cover?
Municipalities, counties, independent school districts, and state institutions of higher learning. The opinion concluded none of them were authorized to deposit funds in the demand accounts of savings and loan associations.

Citations

• Local Gov't Code §§ 105.001, 116.001, 116.021
• Education Code §§ 23.71, 23.73, 51.001, 51.003, 61.003
• V.T.C.S. art. 852a (Texas Savings and Loan Act), §§ 5.05, 6.14; former arts. 2544-2558a, 2549
• 12 U.S.C. §§ 1464(b), 1813(b); 12 C.F.R. § 545.12
• State of Texas v. Clarke, 690 F. Supp. 573 (W.D. Tex. 1988)
• H.B. 1572, 72d Leg. (1991)
• Tex. Att'y Gen. Ops. M-22 (1967), H-723 (1975), H-1013 (1977), MW-272 (1980), MW-531 (1982), MW-534 (1982), JM-42

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0099
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1992/dm0099.pdf

Original opinion text

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

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

March 30, 1992

Mr. James L. Pledger
Commissioner
Texas Savings and Loan Department
2601 North Lamar, Suite 201
Austin, Texas 78705

Opinion No. DM-99

Re: Whether certain governmental entities may lawfully deposit funds in the demand accounts of state and federal savings and loan associations and savings banks (RQ-220)

Dear Commissioner Pledger:

You have requested an opinion regarding whether certain governmental entities organized under the laws of the State of Texas may lawfully deposit funds in the demand accounts of "state and federal savings and loan associations and savings banks," which you refer to collectively as "savings associations."[1] In particular, you ask about the authority of municipalities, counties, independent public school districts, and institutions of higher learning.

The authority of these governmental entities to deposit funds is governed by statute. Chapter 105 of the Local Government Code authorizes municipalities to deposit municipal funds in banks. Section 105.001 defines the term "bank" as "a banking corporation or association or an individual banker." Chapter 116 of the Local Government Code authorizes county commissioners courts to contract with banks for the deposit of county funds. Local Gov't Code § 116.021. Like section 105.001, section 116.001 defines the term "bank" as "a banking corporation or association or an individual banker." This office has repeatedly stated that the statutory definition of "bank" found in these sections does not include savings and loan associations, and that savings and loan associations do not qualify as depositories for these and other governmental entities without further statutory authorization. See Attorney General Opinions MW-531 (1982) (concluding that savings and loan associations may not serve as hospital district depositories because statutory terms "banking corporation, association or individual bank[s]" do not embrace such entities); M-22 (1967) (concluding that former article 2549, V.T.C.S., one of the predecessor statutes to chapter 116 of the Local Government Code, did not qualify a savings and loan corporation as a depository for county funds); see also Attorney General Opinions H-1013 (1977); H-723 (1975).

Subchapter E of chapter 23 of the Education Code, the School Depository Act, authorizes independent school districts to establish depositories for the deposit of school funds. Section 23.71 mandates that "[a] school depository . . . shall be a bank located in the State of Texas."[2] Subchapter A of chapter 51 of the Education Code governs the control of funds by certain state institutions of higher learning, including the University of Texas and the Texas A & M University systems. See Educ. Code §§ 51.001 (setting forth the institutions to which subchapter A applies), 61.003 (same). Section 51.003 of that subchapter provides that the governing boards of such institutions may select "one or more depositories as places of deposit" for certain school funds and shall deposit such funds "in the depository bank or banks." In Attorney General Opinion MW-272 (1980), this office concluded that the term "bank" in section 23.71 of the Education Code does not embrace savings and loan associations. See also Attorney General Opinion JM-42 at 1 (credit unions may not serve as school district depositories). The same rationale appears to apply to the terms "depository" and "depository bank" in section 51.003. See Attorney General Opinion MW-272 ("savings and loan associations do not qualify as depositories for political subdivisions without statutory authorization") (emphasis added).

You contend that the foregoing attorney general opinions were written before "the considerable expansion of the powers of savings and loans that occurred after 1982" and imply that they should be overruled. In support of your contention, you assert that savings associations are now insured by the Federal Deposit Insurance Corporation pursuant to the federal Financial Institutions Reform, Recovery and Enforcement Act of 1989, and that federal and state law now authorize federal savings associations and state savings and loan associations to accept demand deposits from any person, see 12 U.S.C. § 1464(b); 12 C.F.R. § 545.12; see also V.T.C.S. art. 852a, § 5.05 (providing that a state savings and loan association may engage in any activity that is permissible for a federal savings and loan association). You also assert that a federal court has "recognized that a savings and loan association chartered in Texas is the functional equivalent of a Texas state bank," citing State of Texas v. Clarke, 690 F. Supp. 573 (W.D. Tex. 1988).[3]

In 1982, this office considered an argument almost identical to the one asserted here. In Attorney General Opinion MW-534, the requestor contended that "recent changes in laws governing savings and loan associations . . . might affect prior opinions of this office regarding the eligibility of such associations . . . to serve as county depositories." Attorney General Opinion MW-534 at 2. We rejected this argument, holding that

[a]lthough these changes provide the authority for . . . savings and loan associations to perform some of the same functions as banks, this alone does not provide the . . . requisite statutory authority that would permit them to serve as county depositories within the ambit of articles 2544 through 2558a, V.T.C.S. [the predecessor statutes to chapter 116 of the Local Government Code].

Id. As is clear from the foregoing, our prior opinions rely on the fundamental principle that express legislative authorization is necessary to allow governmental entities to deposit funds in savings and loan associations. Since 1982, the Texas legislature has not seen fit to amend the applicable provisions of the Local Government Code or the Education Code to authorize municipalities, counties, school districts and institutions of higher learning to deposit funds in savings and loan associations.[4] Recent changes in statutes and regulations governing savings associations, while they may affect the activities in which such associations may engage, do not provide the requisite statutory authority that would permit these governmental entities to deposit funds in savings and loan associations, and therefore do not affect the continued validity of our prior opinions.

SUMMARY

Municipalities, counties, independent school districts, and institutions of higher learning are not authorized to deposit funds in the demand accounts of savings and loan associations.

Very truly yours,

DAN MORALES
Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Assistant Attorney General

JUDGE ZOLLIE STEAKLEY (Ret.)
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Mary R. Crouter
Assistant Attorney General

[1] In your brief, you appear to use the term "savings association" as defined by federal law, which includes state savings and loans and federally chartered savings banks. 12 U.S.C. § 1813(b). You state, however, that "[f]or purposes of analyzing authorized deposit-taking activities, these thrift institutions should be considered collectively." We use the term "savings association" only in characterizing your contentions, and refer to and confine our analysis to "savings and loan associations."

[2] Section 23.73 defines a "bank" as:

[3] Another brief submitted in support of the Savings and Loan Department's position suggests that the Texas Savings and Loan Act, V.T.C.S. art. 852a, § 6.14, authorizes governmental entities to deposit funds in savings and loan associations. In Attorney General Opinion H-723, this office held that that provision, standing alone, does not give any political subdivision the authority "to make investments unaffected by legal restrictions found elsewhere in the law of this State." Attorney General Opinion H-723 at 4; see also Attorney General Opinion MW-534.

[4] Indeed, a recent attempt to pass such legislation failed. See H.B. 1572, 72d Leg. (1991) (would have amended Local Government Code, chapter 105, to change the definition of the term