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4000 - Advisory Opinions
Regulation O: Applicability
FDIC-79-1
February 25, 1979
Pamela E. F. LeCren, Attorney
At your request, the Legal Division of the Washington Office has
reviewed the opinion written by yourself addressed to *** relating to
the application of Federal Reserve Regulation O (12 CFR Part 215) to
*** State Bank, *** Credit Corporation (***) and *** Incorporated
(***). According to your letters of May 22, 1979 and June 21, 1979 to
***, the facts relating to *** Bank currently are as follows. Five
brothers and sisters in the *** family own 84.2% of the stock of ***.
Only *** owns, controls, or has the authority to vote more than 18% of
the voting stock of *** 1
and is thus a principal shareholder. The same five persons own *** (at
least 10% of the stock each). All five serve as directors on the board
of directors of ***. *** owns 100% of the stock of ***. *** is
Executive Vice President of ***. *** is Senior Vice President of ***.
*** is President of ***.
We agree with your determination that *** are executive officers of
the bank under § 215.2(d) of the
regulation. 2
As executive officers, their loans from *** personally and to their
related interests, are generally limited to 10% of the bank's capital
and unimpaired surplus.
We also agree with your determination that *** is a related interest
of all three of these persons. Section 215.2(d) and (k) read together
define a related interest to be a company controlled by a person i.e.,
a company with regard to which a person directly, indirectly, or in
concert with others either (1) owns, controls, or has the power to vote
25% of the voting stock of the company, (2) controls in any manner the
election of a majority of the directors of the company, or (3) has the
power to exercise a controlling influence over the management or
policies of the company. A person will be presumed to have control of a
company including the power to exercise a controlling influence over
the company if he/she
{{4-28-89 p.4018}}serves as a director or executive
officer of the company and owns, controls, or has the power to vote
10% or more of the stock of the company. Having met both requirements,
the presumption that *** is controlled by *** is operable. Thus, any
loans from *** to each of them must be aggregated with loans to *** in
order to determine if the ceiling on loans to insiders has been
exceeded. Because *** owns 100% of the stock of *** and because ***
are presumed to control *** they are also presumed to control ***.
Thus, *** and are related interests of all three.
We have not received any information that in our opinion would rebut
the presumption regarding the control of ***. *** in his letter to you
dated June 13, 1979 indicated that in his opinion control of *** is
vested in him because he is the owner of a greater percentage of stock
of *** than any other stockholder and because *** had authorized him to
represent the control interest of *** in ***. These facts do not alter
our opinion regarding *** as more than one individual may control a
company under Regulation O. Section 215.2(b)(2)(i) and (ii) which set
out the two control presumptions of the regulation are not, in our
opinion, mutually exclusive. 3
We are unable to say that the authorization for *** to represent ***
interest in *** is sufficient to rebut the presumption that ***
controls *** and thus that those who control *** in turn control ***.
Even if the authorization irrevocably placed total control over ***
stock in *** the family and business relationship would strongly weigh
against any determination that control had been shifted. If however,
the authorization named an independent agent, the presumption may be
successfully rebutted.
1 A*** is located in a town with a population of less
than 30,000. Other members of the *** family individually own stock in
amounts of less than 18%. As there is no evidence that these family
members act in concert to vote more than 18% of the stock, they are
not considered individually to be principal shareholders. Go Back to Text
2 We note that *** is not longer an executive officer under
that provision as a result of the board of director's resolution on
June 12, 1979 to exclude him from participating in any major
policymaking functions of the bank. Go Back to Text
3 Section 215.2(b)(2)(ii) presumes a person to have control of
a company if that person owns, controls or has the power to vote more
than 10% of the voting stock of the company and no stockholder owns,
controls, or has the power to vote a greater percentage of the stock. Go Back to Text
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