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4000 - Advisory Opinions
Request for Exception to Interlocks Act
FDIC-83-13
October 11, 1983
Pamela E. F. LeCren, Senior Attorney
As per your request, the Legal Division has reviewed the above
referenced application under section 348.4(b)(2) of FDIC's regulations
for an exception from the prohibitions of the Depository Institution
Management Interlocks Act (12 U.S.C. 3201 et seq.,
"Interlocks Act"). An exception is being sought to permit
* * * to serve as directors of * * * (a bank in organization) while
continuing to serve as directors of * * *. * * * also presently
serves as a director of * * *. 1
All of the institutions are located in the * * * SMSA. Absent the
grant of the exception, the subject interlocks would violate section
348.3(b)(1) of FDIC's regulations as * * * and * * * have total
assets in excess of $20 million.
Section 348.4(b)(2) permits an otherwise prohibited interlock
between two institutions if one of the institutions is newly-chartered
(i.e. has been in operation less than two years) and the
interlock is necessary to provide the newly-chartered institution with
management or operating expertise (i.e. such management or
operating expertise is not available without utilizing the services of
persons already serving financial institutions located elsewhere
in
{{4-28-89 p.4131}}the same community or same SMSA).
Applicants' counsel has submitted an affidavit from the CEO of * * *
which recites that "I have canvassed the possibilities of finding
directors with the requisite qualifications, who are not already
serving on boards within the * * * SMSA, but I have not been able to
find anyone who qualifies". 2
Applicants' counsel also recites in the application that "the only
sources of banking experience available to serve as directors of a new
bank, are either connected with a bank in the area or are retired".
Neither the affidavits nor the application specifically indicate
whether or not any management official of a depository institution with
total assets of less than $20 million was considered as a director
candidate for the new bank. (Such an individual's service would be
permissible under FDIC's regulations.) Persons falling within that
category may not have been
considered. 3
Despite the fact that an adequate search for management may have
been conducted, our ultimate assessment of the application does not
rest on the question of whether a search for alternative management was
conducted. 4
It appears, based upon the regional office's investigation, that
* * * is not in need of shared management in order to obtain
management or operating expertise. 5
We therefore conclude that the newly-chartered bank is not, in this
instance, in need of management or operating expertise that could only
be provided through a management official
interlock. 6
As the bank has not demonstrated the need for the management interlock,
the exception is, in our opinion, not available to
* * *.
1According to Regional Attorney Norton's September 9, 1983
memorandum, * * * dual service at * * * and * * * is
grandfathered. Go Back to Text
2 Ten additional affidavits from persons associated with
* * * were also submitted each reciting that the affiant is not aware
of persons other than the applicants with sufficient background to
provide management or operating expertise to the new bank who are
willing and able to serve as directors and who are not management
officials of another depository institution in the * * * SMSA. Go Back to Text
3 Applicants' counsel states the following in the exception
request, "given the size of the prohibited area. . . anyone
presently connected with an institution with over $20 million in assets
within the * * * SMSA is not eligible. This leaves fully retired
* * * SMSA bankers and out of SMSA bankers as the only possible legal
sources of alternative expertise under the. . . regulations." Go Back to Text
4 The Legal Division has indicated in the past that in the case
of the newly-chartered bank exception, the institution needs to
demonstrate that it unsuccessfully attempted to locate management whose
service was permitted under the Interlocks Act. Go Back to Text
5 The regional office memorandum indicated that, "while it
is obvious that these three individuals, who admittedly all have
impressive credentials, would in fact be quite helpful to new
management, their participation cannot be considered necessary
to the success of the new bank, especially in light of their
choice of an experienced individual, also with solid credentials, as
president and CEO. Under these circumstances, a board of directors
composed solely of local businessmen of sound business judgment, even
though they may be short of banking experience, should be sufficient to
guide the bank and assure its success." The application itself
states that * * * has had twelve years of banking experience with
* * * and * * *. He is presently serving as vice president and
manager of the main office of * * *. Go Back to Text
6 Applicants' counsel, in addition to requesting the exception,
argued that the Interlocks Act does not prohibit the interlocks in
question as (1) the institutions will not actually compete, and (2) the
Interlocks Act does not prohibit institutions in the same SMSA from
sharing management so long as one of the two institutions has total
assets of less than $20 million. We disagree. The Interlocks Act is an
antitrust statute and as such is to be strictly construed, i.e.,
it presumes that two institutions in the same SMSA compete. Upon a
strict reading of the Act's SMSA prohibition (see 12 U.S.C. 3202) it is
equally clear that both institutions need to be under $20 million in
assets in order for the small bank statutory exception to apply.
Applicants' counsel has not presented any persuasive argument to the
contrary. Go Back to Text
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