Dear Senator Emert:
You request our opinion regarding securing deposits of public money in state banks under K.S.A. 1995 Supp. 9-1402(d). Your question is this:
"Pursuant to K.S.A. 1995 Supp. 9-1402, may a deposit of public monies or funds made by a Kansas municipal corporation or quasi-municipal corporation in a Kansas bank be secured by pledge and assignment of eligible securities owned by a wholly-owned subsidiary of the bank, which wholly-owned subsidiary is the agent of the bank for pledge and assignment of securities to secure public fund deposits in the bank?"
K.S.A. 1995 Supp. 9-1402 provides in part:
"(a) Before any deposit of public moneys or funds shall be made by any municipal corporation or quasi-municipal corporation of the state of Kansas with any state . . . bank, . . . such municipal or quasi-municipal corporation shall obtain security for such deposit in one of the following manners prescribed by this section.
. . . .
"(d) Any state . . . bank . . . may deposit, maintain, pledge and assign, or cause its agent, trustee or an affiliate bank having identical ownership as the bank receiving the deposit of public moneys or funds to deposit, maintain, pledge and assign, for the benefit of the governing body of the municipal corporation or quasi-municipal corporation in the manner provided in this act, securities owned by it directly or indirectly through its agent or trustee holding securities on its behalf, or owned by such affiliate bank, the market value of which is equal to 100% of the total deposits at any given time, and such securities may be accepted or rejected by the governing body of the municipal corporation or quasi-municipal corporation and shall consist of: . . ." (Emphasis added.)
The emphasized language specifically authorizes a Kansas bank to secure deposits of public moneys made by municipal corporations or quasi-municipal corporations with certain securities owned by the bank, either directly or indirectly through the bank's agent or trustee, or owned by an affiliate bank having identical ownership as the bank receiving the deposit of public funds. The statute also authorizes any state bank to cause its agent, trustee or affiliate bank to secure such deposits in the same manner. Thus, a wholly-owned subsidiary of a state bank, acting as the agent of that bank, may deposit, maintain, pledge and assign certain securities to secure public fund deposits in the bank. If the subsidiary is an affiliate bank having identical ownership as the bank receiving the deposit of public funds, it may also deposit, maintain, pledge and assign certain securities it owns to secure deposits of public funds in the depository bank. The term affiliate company is defined generally as one that is "effectively controlled by another company [as a] branch, division or subsidiary." Black's Law Dictionary 58 (6th Ed. 1990). A wholly-owned subsidiary would, for practical purposes, enjoy identical ownership with the parent corporation.
Such pledged securities may not, however, be deposited for safekeeping in any bank which is owned directly or indirectly by any parent corporation of the depository bank, or with any bank having common controlling shareholders, common majority of the board of directors or common controlling directors with the bank securing such deposits. K.S.A. 1995 Supp. 9-1405(b). See Attorney General Opinions No. 93-91; 87-79. Such pledged securities and the manner in which they are deposited, maintained, pledged and assigned must meet all other applicable requirements as well.