Chapter 1107 of the Ohio Banking Code deals with the
capital securities of Ohio state banks. The
new law removes a long standing provision of Ohio banking law by removing the definition
of “treasury shares.”
The new law also will no longer prohibit state banks
from issuing convertible debt securities requiring individual holders of the
securities to be responsible for the restoration of the banks’ paid-in capital.
Under the old law, treasury shares were deemed retired
after one year after the date of acquisition; authorized but unissued shares were
deemed cancelled after one year of becoming authorized; preferred shares were
to be cancelled and not reissued; and both common and preferred shares were
assessable on a pro rata basis for the restoration of paid-in capital. The new law removes these requirements.
The new law clarifies that employee stock options can be
granted to employees, officers, and directors of the bank and its subsidiaries,
and to other parties who have or will provide a service or benefit to the bank
as determined by the board.
The new law also specifies that pre-emptive rights with
respect to shares issued by a state bank after January 1, 2018 shall be
governed by the general corporation law of Ohio.
The new law eliminates existing restrictions on when a
bank can purchase its own shares and provides that a bank can now repurchase
its own shares with (i) approval of the Superintendent, and (2) in accordance
with the general corporation law.
The new law changes prior law by permitting dividends
and distributions on a bank’s shares to be paid from a special reserve created
from the proceeds from the sale of bank stock, in addition being funded from
Chapter 1109: Bank Powers
The new bill specifies that, in addition to what is
otherwise authorized under the Ohio banking law, a state bank has and may exercise
all powers, perform all acts, and provide all services that are permitted for
national banks and federal savings associations, other than those dealing with
interest rates, regardless of the date the corresponding parity rule adopted by
the Superintendent takes effect (assuming a parity rule is adopted).
Under the new bill, a state bank may elect to operate as
a savings and loan association by filing a written notice with the
Superintendent. Such a bank is
considered a savings and loan if its qualified thrift investments equal or
exceed 65% of its portfolio assets and continue to equal or exceed 65%
of its assets on a monthly average basis in nine out of every twelve months.
The new bill provides that a bank may rely on any
information, agreements, documents, and signatures provided by its customers as
being true, accurate, complete, and authentic and that the persons signing have
full capacity and complete authority to execute and deliver any such documents.
The bank must act in good faith and “good
faith” means honesty in fact and the observance of reasonable commercial
standards of fair dealing.
Under the new bill, a bank may provide electronically
any statement, notice, or report required to be provided if it has the
customer’s consent. A customer’s consent
may be obtained electronically or in writing. Similar rules apply to notices
from a bank customer.
Banks are currently required to provide a customer, at
the time of opening a deposit account, the terms and conditions of the deposit
contract. The statement may be set forth on the depositor’s signature card. Now,
the signature card may be electronic or in
Current law requires a bank to send written notice of a
change to the deposit contract. The new bill permits a bank to provide notice,
in written or “electronic form.”
Current law also requires a bank, for each deposit
account, to send to the customer a written report of the customer’s account.
Under the new bill, the bank is to make available to each deposit customer a
report, in written or electronic form, of the
customer’s deposit account activity since the last report was provided, unless
the account is a certificate of deposit with no activity except for compounding interest.
The new bill states that depositors of public funds that
are collateralized by securities pledged by a bank in accordance with the
Uniform Depository Act (R.C. Chapter 135) and any applicable federal law, have
and maintain a first and best lien and security interest in and to the
securities, any substitute securities, and the proceeds of those securities, in
favor of the depositors.
Current law governs a bank’s provision of safes, vaults,
safe deposit boxes, night depositories, and other secure receptacles for the
use of its customers. The new bill adds that unless agreed to in writing by the
bank, nothing in banking code creates a bailment between a customer and the bank.
Current law specifies that unless otherwise agreed in
writing the relationship between a bank and its obligor, with respect to any
extension of credit, is that of a creditor and debtor, and creates no fiduciary
or other relationship between the parties. The new bill alters this provision,
as follows: “Unless otherwise expressly agreed to in writing by the bank, the relationship between
a bank and its obligor, or a bank and
its customer, creates no fiduciary or other relationship between the
parties or any special duty on the
part of the bank to the customer or any other
Under current law, the Superintendent is required to
prescribe standards for extensions of credit that are secured by liens on real
estate or are made to finance the construction of a building or improvements to
real estate. In prescribing those standards, the Superintendent is to consider
certain factors, such as the risk the extensions
of credit pose to the federal deposit insurance funds. The new bill adds
“or any other factors the Superintendent considers appropriate.” The new bill also states that, despite these
limitations set forth in current law relative to the total loans and extension
of credit that can be made to one person, a state bank may grant credit up to
$500,000 to one person subject to restrictions under federal law.
Under present law a bank may extend credit to any of its
executive officers, directors, or principal shareholders, or to any of their
related interests. It also specifies that whenever an executive officer of a
bank becomes indebted to any other bank or banks, the executive officer must
submit a report to the board of directors of his employer describing the debt.
The new bill removes this reporting requirement.
The new bill allows state banks to invest in debt
securities and obligations in which national banks, savings banks, and savings
associations insured by the FDIC are permitted to invest without obtaining
approval of the Superintendent.
A bank is currently authorized to invest, in the
aggregate, 5% of its paid-in capital and surplus in shares of certain venture
capital firms and small businesses. The new bill specifies that this limitation
applies to stock state
banks and adds – for mutual state banks – a limitation of 5% of its retained earnings.
The new bill also eliminates the prohibition against a
bank or affiliate of a bank owning or controlling or having the power to vote
shares of: (1) more than one bankers’ bank, (2) more than one bankers’ bank
holding company, or (3) both a bankers’ bank and a bankers’ bank holding
Under existing law, a bank may invest up to 25% of its
assets in the securities of bank subsidiary corporations and bank service
corporations. Prior to investing, a bank must obtain the approval of the
Superintendent. For these purposes, the new bill makes the following changes:
clarifies that only a bank subsidiary corporation that is a wholly owned subsidiary of the state bank that
may engage in any activities that are a part of the business of banking (other than taking deposits).
than requiring that a bank service corporation be owned solely by one or more
depository institutions, as in current law, the new bill requires that it be
owned solely by one or more banks.
bill authorizes a bank subsidiary corporation or a bank service corporation to
invest in a lower-tier bank subsidiary corporation or bank service corporation,
subject to certain requirements.
Under current law, a bank cannot invest more than 15% of
its capital in the stock, obligations, or other securities of one issuer,
subject to certain exceptions. One of the current exceptions is investment in
the obligations or securities of the Federal
National Mortgage Association, the Student Loan Marketing Association, the Government National Mortgage Association, or the Federal
Home Loan Mortgage Corporation. The new bill clarifies that this applies to
obligations or securities other than stock in these entities. It also adds another exception for the
shares, obligations, securities, or other interests of any other issuer with
the written approval of the Superintendent.
The new bill permits a state bank to engage in the
business of selling insurance through a subsidiary insurance agency subject to
licensing under Ohio law and the law of every other state in which services are
provided by the bank or its subsidiary.