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4000 - Advisory Opinions
Request for Exemption Pursuant to Section
348.4(b)(2)
FDIC-82-21
November 16, 1982
Pamela E. F. LeCren, Senior Attorney
The following is in response to the Division of Bank Supervision's
request for the comments and opinion of the Legal Division concerning
the subject application.
In brief this application is a request by *** currently a
Director Emeritus of *** for approval by the board of directors of the
FDIC to continue to serve as chairman of the Board of Directors of ***
while continuing to serve ***. Both *** and *** are located in the ***
SMSA. The request is being made pursuant to section 348.4(b)(2) of
FDIC's regulations which permits two financial institutions to engage
in an otherwise prohibited management official interlock where one of
the financial institutions is newly-chartered and the service of the
individual in question at the newly-chartered institution has been
found necessary to provide management or operating expertise to that
institution. 1
The excepted service requires prior approval by FDIC's Board of
Directors and may not continue for more than two years after the
newly-chartered institution opens its doors for business. In the
instant case *** qualifies as a newly-chartered institution for the
purpose of section 348.4(b)(2) as
{{4-28-89 p.4116}}it has been in operation for less than
two years. 2
If the exception were granted, *** could continue to serve both banks
until October 16, 1983. 3
In addition, to his current service at *** is the chairman of the
board of *** Savings and Loan Association, *** ***. The *** management
official interlock is grandfathered pursuant to section 348.5 of FDIC's
regulations as the dual service predated November 10,
1978. 4
On April 14, 1982 the Office of Examinations and Supervision, ***
Federal Home Loan Bank Board, recommended conditional approval of the
interlock between *** and ***. As *** is a member bank, approval was
conditioned upon approval being received from the Federal Reserve
Board. According to Regional Director Fritt's memorandum, the Federal
Home Loan Bank Board is reported to be of the opinion that it will take
no final action on *** application until the Federal Reserve Board has
determined whether or not *** is in need of his expertise.
Discussion:
We note that the Regional Director memorandum indicates that, ***,
as director emeritus at *** does not vote at the board of directors
meetings, but does attend board meetings and receives a directors fee
for each meeting attended. The Interlocks Act defines the term
"management official" to include an advisory director or honorary
director. Although neither the statute nor Part 348 defines either
term, the Legal Division has determined that, a director emeritus who
attends board meetings but does not vote; who speaks to the matters of
business before the board; and who receives the same directors' fee as
the voting members of the board would be considered an advisory
director. On the other hand, we would not consider anyone to be an
advisory director if he or she neither attends nor is authorized to
attend board of directors meetings; does not advise the voting members
of the board; nor has access to information presented to the board.
Applying the earlier precedent to the facts in the instant case,
***, as director emeritus of *** would not be considered an advisory
director/management official of ***, if he were to cease attending the
board of directors meetings and did not advise the voting members of
the board regarding any matters to be brought before the board. As such
an arrangement may be amenable to ***, we would initially recommend
that the regional office contact ***, and explore the possibility of
his restructuring his relationship to *** so that he would not be
considered an advisory director of that bank. If *** were to so limit
his relationship with *** the exemption request could be withdrawn.
Assuming that *** opts to maintain his present relationship with ***
it will be necessary to determine whether or not the exemption request
meets the requirements set forth in section 348.4(b)(2). As stated
earlier, that exemption provides that where an individual's service at
a newly-chartered institution is found necessary to provide that
institution with management or operating expertise, the Board of
Directors may grant permission for the individual to serve the
newly-chartered institution as well as another financial institution
for a period not to exceed two years after the former opens its doors
for business. The operative work in the provision is the term
"necessary". The Legal Division has interpreted that term to
imply that (1) the subject individual has a certain degree of expertise
to provide the institution in question, and (2) adequate expertise is
not available to the
{{4-28-89 p.4117}}institution without utilizing the
services of an individual currently serving elsewhere whose service
would violate the Interlocks Act. The underlying premise of the second
element is that if other capable persons are available to serve the
institution, the interlock is not "necessary" in order to provide
management or operating expertise. In the case of a newly-chartered
institution it has been the opinion of the Legal Division that the
institution seeking to utilize the services of the individual needs to
demonstrate that a search was conducted for persons whose service would
not be in conflict with the Interlocks Act.
While *** apparently possesses expertise that would be valuable for
***, neither the letter application nor any of the other material
provided to the Legal Division shows *** service to be
"necessary" as that term has been defined by the Legal Division.
In view of the lack of supporting data and in light of the fact that
one half of the maximum excepted service period has elapsed, we find no
reason to concur with the regional office recommendation for approval.
If the applicant can supply the FDIC with additional information
demonstrating that *** service is "necessary" over the next year
in order for the institution to successfully function or that having to
replace *** before October 16, 1983 would present an undue hardship to
the bank, we might reconsider our position. In the absence of such
information, we are firm in our belief that the exception is not
warranted.
Conclusion:
It is the conclusion of the Legal Division, based upon the
information provided, that the instant application under section
348.4(b)(2) does not meet the threshold tests as set out therein. The
exemption is therefore, in our opinion, unavailable. We reiterate,
however, that no prohibited interlock would exist between *** and ***
if *** were to limit his relationship to *** by not attending *** board
of directors meetings and not advising the voting members of the board
as to matters before the board.
1 Part 348 of FDIC's regulations implements the Depository
Institution Management Interlocks Act (12 U.S.C. § 3201 et
seq., "Interlocks Act"). Go Back to Text
2 ***, a member bank, received Federal Reserve Board approval
of its charter on December 23, 1980 and subsequently was granted FDIC
insurance coverage on February 3, 1981. The bank opened its doors for
business on October 16, 1981. Go Back to Text
3 ***, who was one of the *** organizers, has been serving as a
director of the bank since it began operations in 1981. He is presently
serving in violation of section 348.3(b)(1) of FDIC's regulations which
prohibits unaffiliated institutions located in the same SMSA from
sharing management if one or both has total assets in excess of $20
million. He is thus subject to removal pursuant to section 8(e) of the
FDI Act as amended by section 427(d)(1) of the Garn - St Germain
Depository Institutions Act of 1982. Section 427(d)(1) amended section
8(e) so as to allow for removal of a management official who is serving
in violation of the Interlocks Act. Go Back to Text
4 *** served as a Director of *** for a period of 48 years
after which he became a Director Emeritus. His service as chairman of
the board of directors at *** dates from 1951. Go Back to Text
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