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4000 - Advisory Opinions
Applicability of Part 348 to Hypothetical
Interlocking Management Situations
FDIC-80-20
August 12, 1980
Pamela E. F. LeCren, Attorney
The following is in response to your July 11, 1980 letter presenting
several hypothetical situations along with your opinion as to the
application of Part 348 of FDIC's regulations (12 C.F.R. 348) to the
facts. 1
You have requested that the FDIC concur in your opinion. The
hypotheticals, which deal with the definition of the term
"management official"; representative or nominee status; the
definition of "person"; and changes in circumstances as those
terms are used in the Depository Institution Management Interlocks Act
are discussed separately below:
Hypothetical No. 1:
Your first fact situation posits whether or not an individual who
has the title of "director emeritus", who attends board of
directors' meetings, who does not vote at the board meetings but does
speak to the matters of business before the board of directors, and who
receives the same director's fee as the voting members of the board is
a management official as that term is defined by section 348.2(h).
In pertinent part, section 348.2(h) defines "management
official" to include advisory and honorary directors. We have no
doubt that an individual such as described above falls into the
category of a management official, i.e., is an advisory
director or an honorary director. You further posit; however, that
instead of attending meetings and addressing topics before the board
for consideration, this individual merely receives a director's fee. In
fact, you go so far as to indicate that the bank's policy is to
prohibit this individual's attendance at board meetings and to further
prohibit contact with any voting director about bank policy etc. You
describe the "director's fee" as being in the way of a retirement
benefit.
It is the opinion of the FDIC that a person such as described above
is neither an advisory nor an honorary director for the purposes of the
Interlocks Act. Although the FDIC has not officially adopted a
definition of the terms "honorary" and "advisory" director,
we have concluded that we will not consider anyone to be
either if he or she neither attends nor is authorized to attend board
of directors' meetings, does not advise voting members of the board,
nor has access to information presented to the board. It is further our
intention to initially presume all persons with the appropriate titles
to in fact be honorary directors or advisory directors within the
meaning of the Interlocks Act. We will; however, invite such persons to
rebut the presumption.
Hypothetical No. 2:
The second set of facts establishes a situation where a member (A)
of a law firm resigns from one of two management official positions and
another member (B) of the same firm is elected to the position vacated
by A. A and B do not, according to your facts, have any agreement,
express or implied, to act for, or on behalf of, each other or the law
firm.
In essence your fact situation poses the question of whether or not
A or B is the representative or nominee of the other thus causing a
management official interlock. Section 348.2(k) defines representative
or nominee as follows:
(k) "Representative or nominee" means a person who
serves as a management official and has an express or implied
obligation to act on behalf of another person with respect to
management responsibilities. Whether a person is a "representative
or nominee" depends upon the facts in individual cases. The
appropriate Federal supervisory agency or agencies will determine,
after giving the affected persons the opportunity to respond whether a
person is a "representative or nominee". Certain relationships
(including
{{4-28-89 p.4057}}family, employment, and agency
relationships), or the ability and exercise of ability by a shareholder
of a depository organization to elect a director, may be evidence of
such an express or implied obligation. For the purposes of this
subsection, person shall include only natural persons.
The law firm will not be considered a management official of both
institutions inasmuch as only natural persons may have representatives
or nominees. A and B could, however, be the representative or nominee
of the other. In determining if a management official interlock
existed, we would have to carefully examine the circumstances under
which B was elected to A's vacated position and any relationship
between the law firm and the two
institutions. 2
Whether or not a representative or nominee relationship exists is a
factual determination, one which we cannot make based on the
hypothetical as presented. We will say that the facts as presented
would warrant close review.
In an opinion dated June 26, 1979 we had occasion to review a
situation in which two individuals associated as counsel with the same
law firm were each management officials of two different institutions.
One of the two institutions was a client of the law firm. Although we
did not need to reach the question to answer the request for an
opinion, we did indicate that the two individuals would not represent
each other because: (1) the two did not share in the profits of the law
firm, (2) neither participated in the legal services rendered to the
bank, and (3) we were assured that they would not communicate with each
other regarding the affairs of either bank. Although the opinion was an
early one (i.e., predated the final adoption of the
definition in section 348.2(k)) it does provide some guidance as to the
type of factors we will continue to examine in making a determination
on the issue.
Hypothetical No. 3:
The third hypothetical concerns an individual who is serving two
institutions (a bank and a mutual savings and loan association) as a
director and who has served in those positions since prior to November
10, 1978. The bank and savings and loan each have offices located in
the same city.
We agree that the regulation (specifically section 348.5) provides
that the above individual is grandfathered in his or her positions as
director of both institutions. This assumes of course that the
interlocking relationship did not immediately prior to November 10,
1978 violate section 8 of the Clayton Act (15 U.S.C. 19). We also
agree, as you further posit, that should the savings and loan
association convert to stock form there will have been no "change in
circumstances" resulting in early termination of the grandfathered
interlock. Section 348.6(a) sets out the changes in circumstances that
can force early termination of a grandfathered interlock. Those and
only those events listed in that subparagraph will do so. Conversion
from mutual to stock form by an institution is not a listed "change
in circumstances."
Should you have any questions regarding the substance of this
opinion, the Interlocks Act, or Part 348 of FDIC's regulations, please
contact me.
1 Part 348 implements the Depository Institution Management
Interlocks Act (12 U.S.C. 3201 et seq., "Interlocks
Act"). In general, the Interlocks Act prohibits two nonaffiliated
depository institutions from sharing a common management official
depending upon the size and location of the institutions. The
Interlocks Act grandfathers certain interlocking relationships which
existed prior to the enactment of the statute (November 10, 1978) and
provides for the orderly termination of interlocks that undergo a
"change in circumstances." Go Back to Text
2 Relatively few cases have dealt with the question of
representative or nominee status in the context of an interlock
(banking or otherwise). See Lehman v. Civil
Aeronautics Board, 209 F.2d 289 (D.C. Cir., 1953) for one case in
which the court found two partners to be representatives of each other
thus creating an interlock even though they acted individually and
neither exerted control over the other. Go Back to Text
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