Kansas Attorney General Opinion 1992-009

ROBERT T. STEPHAN
ATTORNEY GENERAL January 17, 1992
ATTORNEY GENERAL OPINION NO. 92- 9
Robert Fairchild
Douglas County Counselor
808 Massachusetts Street
P.O. Box B
Lawrence, Kansas 66044
Re: Banks and Banking; Trust Companies -- Banking Code;
Trust Authority -- Investment of Public Moneys;
Repurchase Agreements
Cities and Municipalities -- Miscellaneous
Provisions -- Investment of Public Moneys by
Governmental Subdivisions, Units and Entities;
Repurchase Agreements
Synopsis: The bank trust department is not a separate legal
entity from the bank of which it is a part. K.S.A.
1990 Supp. 12-1675(4) allows a governmental
entity to enter into a repurchase agreement as long
as the funds are invested in a bank that has an
office in at least one of the applicable sites
listed in the statute. Cited herein: K.S.A. 1990
Supp. 9-701; K.S.A. 9-1601; K.S.A. 1990 Supp.
12-1675; K.S.A. 1990 Supp. 84-9-105; 84-9-304.

Dear Mr. Fairchild:
As Douglas county counselor, you have requested our opinion on
the following questions concerning repurchase agreements:
"1. Is a bank trust department covered under the broader
category of commercial bank, or is it considered a separate
entity?
"2. When investing in repurchase agreements, what constitutes
'perfected title' in the pledged securities when a tri-party
custodial arrangement and a Master Repurchase agreement is
utilized?
"3. Is it necessary that the collateral be titled in the name
of the particular public entity or is having the collateral in
an account titled ' trust department as agent for
the public entity,' and segregated from the bank's other
assets sufficient?
"4. Does this type of arrangement involving two agreements,
one with a local bank and another between the bank and an
out-of-state party, comply with K.S.A. 12-1675?"
K.S.A. 1990 Supp. 9-701(a) defines bank as a "state bank
incorporated under the laws of Kansas." Since there is no
definition regarding what constitutes a bank trust department
we must look at how the various statutes concerning trust
authority regard a bank trust department. It should be noted
we are referring to a bank that has a trust department within
it, not a separate trust company.
K.S.A. 9-1601 et sec. sets out that it is the bank that
applies for trust authority, pays for insurance through the
federal deposit insurance corporation, and may liquidate,
consolidate or merge upon appropriate approval. We find
nothing establishing that a bank trust department is a
separate legal entity from the bank. Therefore, we opine that
a bank trust department is covered under the definition of a
bank and the totality should be considered a single legal
entity.
Next, you ask what constitutes perfected title in the pledged
securities when a tri-party custodial arrangement and a
Master Repurchase agreement is utilized. K.S.A. 84-9-105(1)(i)
defines instrument as:

"[Al negotiable instrument (defined in
section 84-3-104), or a security (defined
in section 84-8-102) or any other writing
which evidences a right to the payment of
money and is not itself a security
agreement or lease and is of a type which
is in ordinary course of business
transferred by delivery with any necessary
indorsement or assignment."
Because the securities would be "instruments," the method of
perfecting title is generally through possession pursuant to
K.S.A. 1990 Supp. 84-9-304. However, there may be the
option of perfecting title by notification if the collateral
is held by a bailee. K.S.A. 1990 Supp. 84-9-305. The main
thing that must always be strictly reviewed by the bank is
whether the securities are delivered either to the bank or an
independent entity who cannot be considered an agent of the
borrower thus negating the "delivery" of the securities.
The third question deals with the wording necessary when
titling collateral. The better of the two options is probably
the latter one which is entitled " trust
department as agent for the public entity." However, certain
circumstances and fact patterns may make another title more
likely to achieve the desired results. The answer to this
question can only be conclusively answered on an individual
factual basis because the answer depends on what is being
titled and the objective to be accomplished. Changing these
factors may change the wording that is necessary to accomplish
such objective.
Finally, you ask whether a repurchase agreement between a
local bank and an out-of-state bank complies with K.S.A. 1990
Supp. 12-1675. K.S.A. 1990 Supp. 12-1675(4) requires that
the repurchase agreements be entered into with commercial
banks, state or federally chartered savings and loan
associations or federally chartered savings banks which have
offices that are located at least within the state of Kansas.
Therefore, we do not believe that this statute would permit
the funds being invested with an out-of-state bank.
Therefore, in conclusion, it is our opinion that the bank trust
department is not a separate legal entity from the bank.
K.S.A. 1990 Supp. 12-1675(4) allows a governmental entity to

enter into a repurchase agreement as long as the funds are
invested in a bank that has an office in at least one of the
applicable sites listed in the statute.
Very truly yours,
ROBERT T. STEPHAN
ATTORNEY GENERAL OF KANSAS
Mary Jane Stattelman
Assistant Attorney General
RTS:JLM:MJS:bas