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4000 - Advisory Opinions
Application for Insurance--Management Official
Interlock under Part 348
FDIC-80-8
April 9, 1980
Pamele E. F. LeCren, Attorney
The following is in response to Regional Director Sarsfield's
request for an opinion on the eligibility of *** under the Depository
Institution Management Interlocks Act ("Title II" of FIRIRCA) to
serve *** (a proposed bank) as a director. *** is among the list of
proposed directors that was filed as part of the bank's federal deposit
insurance application.
The Depository Institution Management Interlocks Act and Part 348 of
FDIC's regulations which implement the Act generally prohibit the
sharing of management officials by two nonaffiliated depository
institutions depending upon their size and location. *** is currently
serving four existing banks three of which are located in the same SMSA
as the proposed bank. 1
All four banks have total assets of less than $20 million and are
located in cities, towns, or villages that are more than ten miles from
***. Title II does not prohibit a management official interlock between
two banks that are located in the same SMSA if both institutions have
assets of less than $20 million. Such an interlock is prohibited
however, regardless of the asset size of the institutions, if the banks
are located in the same city, town, or village or are located in
adjacent or contiguous cities, towns, or villages. Section 348.2(a)
defines adjacent cities, towns, or villages as those that are located
within ten miles of each other at their closest points. Under the facts
as presented, the dual service of *** as a management official at these
four banks and the proposed bank would not result in an interlock
prohibited under Title II. 2
*** presence at the proposed bank as a director would be prohibited
if he is the "representative or nominee" of his father, ***, who
is currently serving as a director of ***. *** is located in the same
SMSA as the proposed bank and has total assets in excess of $20
million. 3
If *** is the representative or nominee of his father, then *** will be
considered a management official of *** and the proposed bank and a
prohibited interlock will result.4
{{4-28-89 p.4045}}
The FDIC recently adopted an amendment to Part 348 (§ 348.2(k))
which defines the term representative or nominee to refer to a person
who serves as a management official and who has an express or implied
obligation to act on behalf of another with respect to management
responsibilities. A family relationship between two persons both of
whom are management officials at different depository institutions will
give rise to the inference that an express or implied obligation to act
on the other's behalf exists between the two persons. Such a
relationship will not in and of itself cause a person to be considered
the representative or nominee of another but that fact along with other
relevant facts may give rise to such a determination. According to
information provided by your office both *** and *** are attorneys who
have been active in the organization of many of the small banks in the
area. Although father and son share office space, they have separate
law practices. There is no partnership nor employee/employer
relationship between them. *** is, in the estimation of your office,
fully qualified to be a director of the proposed bank on the basis of
past experience and education. He has subscribed to 1-1/2
percent of the stock of the proposed bank for which he will pay out of
his own funds. We do not have any information indicating that *** name
was placed among the proposed directors at his father's insistence or
that *** was in any way responsible for the naming of his son as a
director. Nor can we say that *** was selected solely to serve in lieu
of his father who could not serve the proposed bank due to his
association with ***.
We would find it difficult, based on the facts available to us at
this time, to determine that *** is his father's representative or
nominee thus making his father a management official of two banks in
the same SMSA. 5
If there were reason to find that the network of banks in the SMSA with
which father and son are associated as directors and shareholders tend
to act in concert or in response to one another or that the voting
pattern of father and son was the same, we might find sufficient reason
to ask *** to present arguments on why no representative or nominee
relationship should be found to exist. If *** were to vote his son into
office either through the exercise of his own
stock 6
or in conjunction with the exercise by *** of his own voting rights, we
might be likely to ask that the same showing be made. If information
were available that demonstrated that the correspondent relationship
between *** and the other banks in the network was not conducted on an
arm's length basis, we would request the presentation of arguments on
whether or not a representative or nominee relationship exists.
The information forwarded to this office also indicates that
*** wife, was elected to the board of directors of *** to fill a
vacancy created when *** resigned from the board of directors. Although
*** had total assets of less than $20 million as of December 31, 1979,
it is expected that the assets will have exceeded that figure by the
time the March 31, 1980 report of condition is filed. If that is the
case, a prohibited management official interlock may be created between
*** and the proposed bank should *** become a director of the proposed
bank and his wife is found to be his representative or nominee.
Inasmuch as we are told that *** is not qualified to be a bank
director, it is our opinion that an implied obligation to act on behalf
of *** is present. If no persuasive argument to the contrary is
presented by ***, or a representative of the proposed bank, we are
prepared to find that *** is her husband's representative or
nominee making *** a management official of *** and the proposed bank
should he accept the directorship at the new
bank. 7
The affected parties
{{4-28-89 p.4046}}should be given an opportunity to
respond to our preliminary finding before *** is determined to be
ineligible to serve as a director of the proposed bank. Any information
presented to respond to this preliminary finding should be forwarded to
this office for review so that a final determination can be
made.
1 ***. Go Back to Text
2 Although it does not alter our analysis, it should be noted
that *** service at the existing four banks would be grandfathered
under section 206 of Title II and section 348.5 of FDIC's regulations
if his service began prior to November 10, 1978 and his service was not
in violation of section 8 of the Clayton Act (15 U.S.C. § 19) at that
time. Go Back to Text
3 *** also serves on the board of directors of several other
banks in the same SMSA. All of the banks, with the exception of ***,
have assets of less than $20 million. We are told that *** is typically
involved in bank organizations, purchases various amounts of
stock in the new institutions, accepts a seat as a director and will
often serve as bank counsel after the banks open for business.
4 Title II and section 348.2(h) define the term "management
official" to include directors, officers with management functions,
employees with management functions, and any person who has a
"representative or nominee" serving in any of the above
capacities. Go Back to Text
5 We do feel however that because of the close relationship
between *** and the banks in the network the situation warrants careful
monitoring as a representative or nominee relationship could arise in
the future. Go Back to Text
6 *** has subscribed to 5 percent of the stock of the proposed
bank. Go Back to Text
7 Title II was in our opinion specifically intended to reach
those instances where an individual is named as a management official
solely to serve in the stead of someone who could not directly serve in
the position. That would appear to be the case here. Go Back to Text
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