It is the opinion of the Board
of Governors that the provisions of section 5201 of the Revised Statutes
(12 USC 83), which prohibits the “purchase” by a national bank of
shares of its own capital stock, do not apply to acquisition by a
bank of outstanding shares of its capital stock for the purpose of
immediate retirement. Such acquisition and retirement constitute a
reduction of capital stock, and the National Bank Act (R.S. 5143;
12 USC 59) and the Federal Reserve Act (the eleventh paragraph of
section 9, 12 USC 329) permit reduction of the capital stock of national
banks and member state banks, respectively, with supervisory approval.
In other words, section 5201 does not apply to a bank’s acquisition
of shares of its own stock as one step in the reduction of capital;
this type of transaction is governed, instead, by the provisions of
federal banking law cited in the preceding sentence. The purpose of
section 5201 is to prevent an unauthorized reduction of a bank’s capital
cushion, and that danger is not present when a bank’s capital is to
be reduced with the approval of the appropriate federal supervisory
authority.
Accordingly, if a Federal Reserve Bank is satisfied as
to the propriety of the plan of the member bank from the standpoints
of sound banking, capital adequacy, and fairness to the member bank’s
stockholders, the Reserve Bank is authorized, pursuant to section
265.2(f)(4) of the Board’s Rules Regarding Delegation of Authority,
to permit the member bank to reduce its capital stock in accordance
with the said plan. S-2025; Aug. 4, 1967.
