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4000 - Advisory Opinions
Request for Exemption from the Interlocks Act under
Sections 348.4(b)(3) and (b)(5)
FDIC-84-9
April 3, 1984
Pamela E. F. LeCren, Senior Attorney
The following is in response to your request for the Legal
Division's comments and opinion on the above-captioned request for an
exemption from the Interlocks Act 1
under sections 348.4(b)(3) and (b)(5) of FDIC's regulations. Section
348.4(b)(3) permits an otherwise prohibited management official
interlock between two depository institutions if one of the
institutions faces conditions that endanger its safety and soundness
and the relationship is necessary to provide such institution with
management or operating expertise. The authority to grant but not deny
requests under section 348.4(b)(3) has been delegated to the
Director of the Division of Bank Supervision and, where confirmed in
writing by the Director, to the appropriate regional director (see
section 303.11(a)(14)). Section 348.4(b)(5) permits an institution to
phase out an existing management official interlock over a
thirty-month period in circumstances where the institution faces the
loss of 30 percent or more of its directors or other management
officials due to a change in
{{4-28-89 p.4151}}circumstances that has caused the
interlock to become prohibited. Prior to the November 30, 1983
amendment to Part 348, both exemptions (as well as the other exemptions
found in section 348.4(b)) required approval of more than one federal
financial supervisory agency if the institutions involved were
supervised by different agencies. As amended, however, only the
supervisory agency of the institution falling within an enumerated
category, in this instance the endangered institution, need approve the
exemption.
In the instant case, * * * is requesting approval to become a
director of * * * while continuing to serve as a director of * * *.
As both institutions are located in the * * *
MSA 2
and * * * has total assets in excess of $20 million, the interlock
would be prohibited under section 348.3(b)(1) of FDIC's regulations.
The FDIC is the only agency that need act on the request as an insured
nonmember bank, * * * is the depository institution which is seeking
management or operating expertise due to its condition.
Our comments are few. We agree with Regional Director Dorbad's
conclusion that the exemption in section 348.4(b)(5) is inapplicable on
its face. As to the request under section 348.4(b)(3), we will only
comment, as we have had occasion to previously indicate, that the
necessity standard set forth in the exemptions is inherently flexible.
While Regional Director Dorbad's memorandum correctly recites the
necessity standard as it has been construed from time to time, the
Regional Director's memorandum overlooks the Legal Division's prior
statements that a strict reading of the standard is not appropriate in
the context of an institution which faces conditions that endangers its
safety and soundness.
If it is determined that * * * does face conditions which endanger
its safety and soundness (and there seems to be a basis upon which such
a determination could rest), the exemption would be available if
* * * service can be found to be necessary. A finding of necessity
could legitimately be made, in our opinion, if the following questions
are favorably resolved: (1) is it expected that * * * service will
substantially benefit * * * and (2) is the need for additional
expertise in order to avoid further deterioration of the institution's
condition, immediate, i.e., is it unrealistic to expect that
other means to provide the needed expertise can be explored without
putting the institution at risk?
We recommend that the Administration and Corporate Applications
Branch in assessing this application apply the standard set forth above
rather than that recited in Regional Director Dorbad's memorandum. If
it is determined that the exemption may be granted, we remind you that
approval may be granted by the Director of the Division of Bank
Supervision under delegated
authority.
1 Depository Institution Management Interlocks Act, 12 U.S.C.
§ 3201 et seq., "Interlocks Act." Go Back to Text
2 Section 203(1) of the Interlocks Act was amended by the
Garn-St. Germain Act so as to delete the reference to SMSA in the
prohibitions on interlocking management. Inserted in its place was a
prohibition on management interlocks where the institutions have
offices located in the same Metropolitan Statistical Area ("MSA")
or the same Primary Metropolitan Statistical Area ("PMSA"). On
February 21, 1984 the Board of Directors adopted a final amendment to
Part 348 making the requisite terminology changes. The amendment has
not been published in the Federal Register as of yet,
however, as the other agencies participating in the joint register
notice have not yet adopted the amendment to their respective
regulations. Go Back to Text
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