              THEA~TORNEYGENERAL
                       OF-TEXAS



                                    January     17, 1974



The Honorable  W. Sale Lewis                               Opinion   No.   H- 215
Commis,sioner
Texas Savings and Loan Department                          Re:     Can a state chartered
P. 0. Box 1089                                                     savings and loan asso-
Austin,  Texas 78767                                               ciation designate   all or
                                                                   any part of its perma-
                                                                   nent reservd~fund    stock
                                                                   as a part of its Federal
Dear   Mr.   Lewis:                                                Insurance   Reserve    account?

       You have       requested   our opinion   on the following     question:

              “Can a state chartered     savings and loan association
              designate or earmark     all or any portion of its per-
              manent reserve    fund stock as a part of its Federal
              Insurance  Reserve   account? ”

       Section  2.02 of Article      852a, V. T. C. S., empowers   a state savings
and Loan association   to issue      Permanent   Reeerve  Fund Stock,   subject to
its provisions.

        Section 563.11 of the insurance       regulations    promulgated     by the
Federal    Home Loan Bank Board (12 C. F. R. § 563. 11) applicable             to state
savings and loan associations       which are insured by the Federal           Savings
and Loan Insurance     Corporation,      provides     that such permanent      reserve
fund stock (called  “capital   stock ” in the regulations)         may be earmarked
as part of the association’s     federal    insurance     reserves     where such stock
is “permitted   by State law to be used for absorbing            losses. ”

        There is no case law answering    your question  nor do the applicab,le
statutes expressly   prohibit  or allow the use of such stock for the purposes
in question.    The basic issue is whether   such stock is “permitted  by State
law to be used for absorbing     losses?”




                                         p.   LOOS
.   .




        The Honorable        W.   Sale    Lewis,     page     2 (H-215)




                In our opinion the stock is permitted  under Texas law to be used
        for absorbing     losses and therefore can be used as part of an association’s
        federal   insurance    reserve fund,

               Section     2.02   of Article       852a,    V. T. C. S.,   provides   as follows:

                         ” . . . Such,Permanent       Reserve   Fund Stock, when
                         issued,    may not be retired    or withdrawn      except as
                         hereinafter    provided,   until after all liabilities     of
                         the association     shall have been satisfied     in full,
                         including   the withdrawal    value of all savings accounts
                         . . . . II

        This not only      permits,      it requires        the use of such stock     for   absorbing
        losses.

               The   same     $2.02      also   provides:

                          ,I . . . Associations      whose savings accounts      are
                         insured    by the Federal     Savings and Loan Insurance
                         Corporation      may retire    in whole or in part any such
                         stock heretofore       issued when such associations        are
                         authorized     to do so by a majority      vote at any annual
                         meeting    of its members,       or any special    meeting    of
                         members      called for such purpose;       provided,    that
                         the basis of such retirement         shall have been first
                         approved     by the Commissioner        and consent to such
                         retirement     upon the part of the Federal       Savings and
                         Loan Insurance       Corporation    has been filed in writing
                         with the Commissioner.         ”

                Apparently    the Legislature   contemplated    that the Federal   Savings and
        Loan Insurance      Corporation    would have some interest      in the permanent
        reserve    fund stock, and the primary       if not the only reason for such interest
        would be if the stock were permitted         to be used as part of an association’s
        insurance    reserve.     This implies   a legislative  intent to permit   such use.




                                                           p. 1006
The    Honorable     W.      Sale   Lewis,     page      3 (H-215)

        It further    appears   that a prohibition     against use of such stock for
federal    insurance    reserve    would, in effect,       place a more stringent
reserve     requirement      upon stock   companies       tha,n upon non-stock  state
associations      or federal   associations.      Unless a stock company can use
its stock    as part of its reserve,       it, in effect,    has an additional reserve
cushion available       solely for the absorption        of losses,  such cushion not
being required       of other associations.       Such inequality    should not be
read   into   the statutes      unless       clearly      expressed,       which   it is not.

                                             SUMMARY

                        A state   chartered   savings and loan association
                 may designate      or earmark    all or any portion of its
                 permanent     reserve   fund stock as a part of its federal
                 insurance    reserve   account.

                                                       Very   truly    yours,




                                                       Attorney       General   of Texas




DAVID M. KENDALL,                   Chairman
Opinion Committee




                                                  p.     1007
