The Board of Governors has been
presented with the question whether capital notes or debentures issued
by banks, that are subordinated to deposit liabilities, may be considered
as part of a bank’s capital stock, capital, or surplus, for purposes
of various provisions of the Federal Reserve Act that impose requirements
or limitations upon member banks.
A note or debenture is an evidence of debt, embodying
a promise to pay a certain sum of money on a specified date. Such
a debt instrument issued by a commercial bank is quite different from
its stock, which evidences a proprietary or equity interest in the
assets of the bank. Likewise, the proceeds of a note or debenture
that must be repaid on a specified date cannot reasonably be regarded
as surplus funds of the issuing corporation.
Federal law (12 USC 51c) expressly provides that the term
“capital,” as used in provisions of law relating to the capital of
national banks, shall mean “the amount of unimpaired common stock
plus the amount of preferred stock outstanding and unimpaired.” In
addition, when Congress in 1934 deemed it desirable to permit certain
notes and debentures—those sold by state banks to the Reconstruction
Finance Corporation—to be considered as capital or capital stock for
purposes of membership in the Federal Reserve System, Congress felt
it necessary to implement that objective by a specific amendment to
section 9 of the Federal Reserve Act (12 USC 321). These plain evidences
of congressional intent compel the conclusion that, for purposes of
statutory limitations and requirements, capital notes and debentures
may not properly be regarded as part of either capital or capital
stock.
Accordingly, under the law, capital notes or debentures
do not constitute capital, capital stock, or surplus for the purposes
of provisions of the Federal Reserve Act, including, among others,
those that limit member banks with respect to purchases of investment
securities (12 USC 24, 335), investments in bank premises (12 USC 371d),
loans on stock or bond collateral (12 USC 248(m)), deposits with nonmember
banks (12 USC 463), and bank acceptances (12 USC 372, 373), as well
as provisions that limit the amount of paper of one borrower that
may be discounted by a Federal Reserve Bank for any member bank (12
USC 84, 330, 345). 1964 Fed. Res. Bull. 9.
