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4000 - Advisory Opinions
Request for Exemption Under § 348.4(b)(3) to
Permit Management Interlock
FDIC-82-4
February 12, 1982
Pamela E. F. LeCren, Attorney
{{4-28-89 p.4097}}
The following is in response to your request for the Legal
Division's comments regarding an application on behalf of *** and ***
for permission to establish a management official interlock between ***
*** and ***. The request is made pursuant to § 348.4(b)(3) of Part
348 of FDIC's regulations which implements the Depository Institutions
Management Interlocks Act (12 U.S.C. 3201 et sec.,
"Interlocks Act"). Section 348.4(b)(3) provides that a
management official of an insured nonmember bank may enter into an
otherwise prohibited management official interlock if one of the
depository organizations has been found by its primary federal
supervisory agency to face conditions that endanger its safety or
soundness and the appropriate federal supervisory agency or agencies
determine the relationship to be necessary to provide management or
operating expertise. It is within the authority of the Board of
Directors to impose other conditions in addition to or in lieu of the
above.
The facts regarding the request are as follows. Both the *** and ***
are located in the *** SMSA. They are not affiliated. *** has total
assets in excess of $20 million. The provision of the Interlocks Act
and Part 348 that would permit two banks located in the same SMSA to
interlock if neither has assets in excess of $20 million is therefore
inapplicable. *** and *** are both currently serving as directors of
*** and each holds a 24% interest in
***. 1
A determination by the OCC that the national bank faces conditions
which endanger its safety or soundness is a prerequisite under
§ 348.4(b)(3), therefore, it will be necessary to obtain the opinion
of the OCC regarding the condition of ***. Assuming that OCC makes a
favorable determination on that issue, the exemption would be available
if both the OCC and FDIC find that *** and *** are "necessary" to
provide operating or management expertise to the national bank. As the
Legal Division has indicated in the past, necessity of service is an
inherently flexible standard. Necessity in the context of an
institution which faces conditions that endanger its safety or
soundness may vary from necessity in the context of a newly-chartered
bank. 2
Where an "endangered" institution is involved, it is our opinion
that the condition of the institution would warrant a broad reading of
the term necessity as little if any time may be available to locate
management. In any event, as the institution in need of management or
operating expertise in this instance is a national bank, it may be
appropriate to defer to the OCC on the question of necessity. According
to OCC Washington staff, the application had not been received in the
Washington office as of February 10th. Therefore, no indication of how
the OCC might act with regard to the application can be provided at
this time.
{{4-28-89 p.4098}}
We would recommend that action on the application be deferred until
the OCC has indicated whether or not *** is in fact facing conditions
that endanger its safety or
soundness. 3
If the change in control has materially altered the condition of the
bank; persons are available who could provide management or operating
expertise without violating the Interlocks Act; and the OCC is not
strongly in support of the application; a denial may be
appropriate.
1 It is our understanding that the 24% interests of *** and
*** *** came about as a result of a change in bank control. It should
be noted that if the pending application is denied, the possibility of
a prohibited management official interlock still exists due to the
stock interests held by *** and ***.
The Interlocks Act not only prohibits direct management official
interlocks but also proscribes indirect interlocks by defining any
person who has a representative or nominee sitting as a management
official to also be a management official. Section 348.2(k) defines the
term "representative or nominee" to include persons who have an
express or implied obligation to act on behalf of another. Factors that
may be evidence of such an obligation include the ability and exercise
of ability by a shareholder to elect a director. The Legal Division has
had occasion to indicate that a representative or nominee relationship
may necessarily arise where a shareholder owns a substantial portion of
the stock of a bank, i.e., the larger the holding, the
harder it would be to establish that persons voted into office were not
the representative of the shareholder.
We do not feel that a 24% shareholding by itself is sufficient to
necessarily result in representative or nominee status. The combined
holdings of *** and *** (48%) may, depending upon the facts, be
sufficient to preliminarily result in a determination of representative
or nominee status. We are unable, however, based upon the information
submitted to us at this time to conclude whether it would be
appropriate to consider persons voted into office as a result of their
combined votes to be the representatives or nominees of one or both
men. Go Back to Text
2 It has been the opinion of the Legal Division in the case of
a newly-chartered bank that the applicant needs to demonstrate that a
search was conducted for persons to serve the bank whose service would
not violate the Interlocks Act. The underlying premise is that if other
capable persons are available to serve, the interlocking service is not
"necessary" in order to provide management or operating
expertise. Go Back to Text
3 Regional Director Sarsfield's February 3, 1982 memorandum
indicates that, until its purchase, the national bank was characterized
by OCC as a serious problem bank and had nearly failed. The change in
control may or may not have substantially altered the present condition
of the bank. Go Back to Text
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