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4000 - Advisory Opinions
Exception from the Interlocks Act Pursuant to
Section 348.4(b)(3) of FDIC's Regulations
FDIC-83-7
June 22, 1983
Pamela E. F. LeCren, Senior Attorney
The following is in response to your request for comments concerning
the subject application. The application requests that * * * and
* * * be permitted to serve as directors of * * * while continuing
to serve as directors of * * *. According to Regional Director
Waldrop's memorandum, * * * and * * * are located in the same
community (as that term is defined in Part 348 of FDIC's regulations)
and the two institutions are not affiliated for the purposes of the
Interlocks Act. Absent approval of the exception request, the
interlocks would be prohibited under section 348.3(a) of FDIC's
regulations implementing the Depository Institutions Management
Interlocks Act ("Interlocks Act", 12 U.S.C. § 3201 et
seq). 1
The exception request is being made pursuant to section 348.4(b)(3).
Section 348.4(b)(3) provides that, despite the prohibitions of the
Interlocks Act, a person may serve at the same time as a management
official of two depository institutions if: (1) the primary federal
supervisory agency of one of the institutions (or its state supervisory
agency if it has no federal supervisory agency) believes that the
depository institution faces conditions endangering its safety or
soundness, and (2) the appropriate federal supervisory agency or
agencies determine the relationship to be necessary to provide
management or operating expertise to the institution facing conditions
endangering its safety or soundness. Other conditions in addition to or
in lieu of the foregoing may be imposed by the appropriate federal
agency in a specific case. The section does not provide any time limit
on the length of service that may be permitted. There is an implied
condition, however, that the excepted service will terminate when the
institution no longer faces conditions that endanger its safety or
soundness.
The Director of the Division of Bank Supervision has the delegated
authority to approve but not deny the subject application. (See section
303.11(a) (14).) In order to approve the application, two things must
be favorably resolved. The Division of Bank Supervision must determine
that * * * faces conditions that endanger its safety or soundness and
that the
{{4-28-89 p.4126}}presence of * * * are necessary to
provide management or operating expertise to * * *. According to
Regional Director Waldrop's memorandum, the condition of * * * has
deteriorated significantly in the past year and it is evident that the
bank is in need of stronger management in order that its present
problems might be satisfactorily resolved. In its comments on the
recent change in bank control involving * * * which was the subject
of a FDIC letter of intent not to disapprove dated May 20, 1983, the
Department of Banking and Securities for the State of * * * indicated
that the equity capital of * * * is greatly diminished and that
failure is possible unless corrected. 2
We would presume, based upon Regional Director Waldrop's comments
and the letter from the * * * Department of Banking and Securities,
that the subject institution does in fact face conditions that endanger
its safety and soundness. As to the necessity of the interlocks in
order to provide management or operating expertise to * * *, the
Legal Division has had occasion, in at least one other interlock
arising from a change in bank control
application, 3
to indicate that the interlock was "necessary" as the purchase
was dependent upon the purchasers receiving approval to serve as
management, i.e., the transaction (including the formation of the
interlock) was necessary to provide management or operating expertise
without which the institution would fail.
We do not know whether or not such a "package arrangement" was
involved with this change in bank control. It is conceivable that the
change in bank control could have proceeded and the necessary
management have been obtained through individuals other than * * *.
We note that * * *, Review Examiner, in a May 20, 1983 memorandum to
the files regarding the notice of change in bank control, indicated
that "it is evident there is some direct competition between * * *
and * * * which would be significantly diminished through the
proposed acquisition of control." Although the review examiner
resolves the question favorably stating that the situation is not
sufficiently severe to warrant denial on the basis of competitive
factors, the review examiner's statement raises two questions: (1)
whether the anti-competitive effects of the proposed interlocks are
outweighed by the management and operating expertise that would be made
available to * * * and (2) whether the bank's situation is such that
it could invest the time to locate additional management that would not
present an interlocks problem.
Despite our above comments, we recognize that the standard of
necessity in the case of an institution that faces conditions which
endanger its safety and soundness is inherently flexible. If the
Division of Bank Supervision can satisfactorily resolve in its own mind
that the instant interlocks are necessary in the same context as in the
case of * * * (see footnote 3) or that the instant interlocks are
necessary in that the condition of the bank does not allow the
investment of time to locate additional management, then the Legal
Division would not have any objection to Regional Director Waldrop's
recommendation for approval.
1 Section 348.3(a) of FDIC's regulations provides that two
unaffiliated depository institutions with offices located in the same
community may not share the same management. "Community" is
defined to mean the same city, town, or village, and contiguous or
adjacent cities, towns, or villages. * * * are, in addition to
serving * * * serving as directors at the * * *. We presume, based
upon the information presented to the Legal Division, that the
interlocks between * * * and * * * do not present any problem under
the Interlocks Act. Go Back to Text
2 The change in bank control application involved * * * who
acquired 80% of the stock of * * * from * * *. The letter of
intent not to disapprove indicated that the acquiring individuals could
not legally serve as directors of * * * unless an affiliation with
* * * was established or a request for an exception from the
prohibitions of the Interlocks Act is approved by the FDIC. An
amendment to the subject Change in Bank Control Notice indicates that
it is the intent of the parties to transfer shares in * * * to
certain other individuals whereupon * * * will become affiliated with
* * *. As we have no details regarding the intended transfer, we
cannot comment upon whether or not the two institutions would be
affiliated subsequent to that transfer. Go Back to Text
3 * * * Go Back to Text
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