St. Charles State Bank v. Wingfield

• Decision Date: 31 December 1915
• Docket Number: No. 3940.,3940.
• Parties: ST. CHARLES STATE BANK v. WINGFIELD, Public Examiner.
• Court: South Dakota Supreme Court

36 S.D. 493

155 N.W. 776

ST. CHARLES STATE BANK

v.WINGFIELD, Public Examiner.

No. 3940.

Supreme Court of South Dakota.

Dec. 31, 1915.

Proceeding by the St. Charles State Bank, of St. Charles, S. D., for a writ of prohibition against J. L. Wingfield, Public Examiner of the State of South Dakota, to prohibit him from putting into effect a certain order. Writ granted.Bailey & Voorhees and Aikens & Judge, all of Sioux Falls, Brown & Brown, of Canton, and French & Orvis, of Yankton, for petitioner.

Lauritz Miller, of Mitchell, and E. E. Wagner, of Sioux Falls, for respondent.

SMITH, J.

Plaintiff, the St. Charles State Bank, brings this proceeding seeking to prohibit respondent as public examiner from putting into effect a certain order, the material portions of which are hereinafter set forth.

We think it necessary to consider but two of the six objections to the order urged by petitioner as grounds of relief. One of these is, that the order is in conflict with section 31, art. 2, c. 102, Laws 1915, hereinafter referred to as the Banking Act; the other, that the order, if not in conflict with the statute, is in contravention of section 1, art. 3 of the state Constitution. Section 1 of the order provides that, all banks (other than national banks) authorized to do business in this state-

“shall keep on deposit within the state of South Dakota, in banks organized and existing under and by virtue of the laws of South Dakota, or in banks that may hereafter be organized and authorized to engage in the business of banking in South Dakota, a sum of money equal to fifty per cent. (50%) of its legal reserve.”

Section 2 of the order in substance provides, that all state banks now or hereafter existing under the laws of this state, which banks now are or hereafter may be located in reserve cities-

“may keep their respective reserves in either state or national banks within the state of South Dakota, or in any other state, which banks have been approved by the public examiner as reserve depositaries, provided that the amount deposited with any reserve depositary shall not exceed twenty-five per cent. (25%) of the amount shown by the books of any such bank to be ‘Due from Banks' and that this limitation shall not apply or extend to banks organized and existing under the laws of the state of South Dakota; and provided further that banks now located, existing and doing business within reserve cities hereinafter designated and in cities that may hereafter be designated by the public examiner as reserve cities, and banks that may hereafter be authorized to engage in the business of banking in such cities, shall not negotiate or open up or carry an exchange account with any depositary bank without first having obtained a certificate from the public examiner designating and approving such depositary or depositaries.”

Section 3 of the order designates nine cities within the state as “reserve cities.”

The Banking Act itself recognizes two classes of banks by prescribing different reserves for reserve banks, and for other banks, but it does not further differentiate the two classes, or confer on one class any other rights, privileges, or immunities which do not belong equally to the other class. The order of the public examiner places important additional limitations and restrictions upon the transactions of both classes of banks. It requires that all state banks not reserve banks, shall keep on deposit at all times at least one-half of their legal reserves in banks within the state. As to reserve banks, the effect of the order, as limited by the first proviso, is, that they are given two options: First, to deposit their reserves in other approved banks within the state, without any restriction as to the amount of reserve which may be placed in any one state bank; second, to deposit reserves in any approved national bank in the state, or in any approved bank outside the state. But in the exercise of the latter option they are forbidden to deposit in any one national bank in the state, or in any one bank outside the state, an amount greater than one-fourth of the amount “Due from Banks.”

A careful consideration and analysis of the entire order leads us to the conclusion that it is the place of the deposit, and not the amount of the reserve, which the order of the public examiner seeks to control. The general purpose sought to be attained by the order appears to be the keeping within the state of at least one-half of the bulk of the reserves of state banks. This purpose is made quite clear by that provision of the order which directs and specifically requires that all state banks not reserve banks shall keep at least one-half of their reserves on deposit in state banks, and the other provision which permits reserve banks to deposit their entire reserves in one or more state banks, but denies the right to deposit in any one bank outside the state an amount exceeding one-quarter of the entire deposits of the reserve banks.

[1] Section 31 of the Banking Act vests in the boards of directors of all state banks, both reserve banks and others, the right to determine in their absolute discretion, whether their legal reserves shall be deposited, in whole or in part, in other banks. The public examiner is not given authority to require such reserves or any part thereof, to be kept in the vaults of state banks, or to be deposited in other banks, nor does the statute give him any authority, in case boards of directors elect to deposit their reserves or some portion thereof in other banks, to select or direct the particular bank or banks in which such deposits shall be made. Nowhere in the act do we find anything indicating that the Legislature intended to deprive state banks of the right heretofore exercised, of selecting their own banks of deposit, either within or without the state. The exercise of this right is subject by the Banking Act itself, to a single limitation, namely, the power of the public examiner to decline to approve the reserve bank selected. The statute by implication, requires such approval before reserve deposits are made. We are clearly of opinion that the Legislature, in enacting the Banking Act, did not intend to take away or limit the right of state banks to transact their business in the usual and ordinary way, except where particular acts or things are required to safeguard the funds of such banks.

[2][3] Clearly, therefore, it was not the purpose of the act to vest the public examiner with arbitrary and unlimited authority to refuse, without proper and sufficient cause, to approve a bank of deposit selected by the depositing bank, and we are of opinion that a wrongful exercise of such administrative authority would be subject to judicial review. But such refusal, under a rule long recognized by this court, would always carry with it a strong presumption of a proper discharge of official duty on the part of the public examiner, and would require a clear showing that a refusal to approve a bank so selected was not justified by sufficient reasons affecting the safety of reserve funds, or safe banking practices.

[4][5] We reach the conclusion, therefore, that it was not the legislative intent or policy, as disclosed by the Banking Act, to require any state bank, whether reserve or nonreserve, to keep within the state, either as a deposit in reserve banks or in its own vaults, any part of its reserve. Such a requirement would certainly involve an exercise of the highest discretion, and if it were clear that the Legislature had attempted or intended to confer upon an executive or ministerial officer authority to require reserves of any bank to be kept within the state, it would be a delegation of power in contravention of those provisions of the state Constitution which vest all legislative power in the legislative branch of the government, or retain it through the initiative, in the people themselves. Section 1 of the order in direct and unmistakable language declares that at least one class of state banks, viz., those not reserve banks, shall keep on deposit within the state at least 50 per cent. of the legal reserves. Such banks are thus absolutely forbidden to deposit more than 50 per cent. of their legal reserves in any bank outside the state.

[6] The Banking Act requires that all banks shall keep on hand a legal reserve. Such statutory requirement is a valid and proper exercise of legislative power and discretion. Respondent's counsel say in their brief:

“The legal reserve is that portion of the bank's funds with which the everyday transactions of the bank are conducted.”

That such a fund is one of the essentials to the proper protection of the public against injudicious and unsafe banking practices cannot be doubted. The power of the Legislature to require such a fund, and to provide for its safe-keeping under proper administrative rules and regulations, can hardly be questioned. The Banking Act is such a law. It declares that all state banks shall keep on hand certain reserves, and that such reserves may be deposited in other banks “approved by the public examiner,” but does not declare that such deposits may only be made in state banks or banks within the state. As an administrative rule ar regulation to safeguard such deposits, the statute does require that depositary banks must first be approved by the public examiner.

[7] No further power or authority is given him in the matter of reserve deposits, unless it be conferred by the provisions of sections 53 and 54 of the Banking Act. Respondent contends that these sections vest the public examiner with authority to make the order which is challenged in this proceeding. These sections are:

“Sec. 53. Public Examiner May Make Rules-How.-The public examiner by and with the approval of the Governor and the Attorney General, shall have power to make such rules and regulations for the government of the banks of this state as may in his judgment seem wise...