October 24, 1997
Robert S. Walls, Sr., President
Delaware Credit Union League, Inc.
4 Quigley Boulevard
New Castle, DE 19720-4150
Dear Mr. Walls:
You have asked whether a member of a federal credit union's (FCU's)
supervisory committee is considered a management official under
NCUA's management interlocks rules. No, a supervisory committee
member is not a management official under NCUA's management interlocks
rules.
You also ask whether an inherent conflict of interest exists for
a bank director to be on the supervisory committee of an FCU when
both the bank and FCU are located in and serve the same community.
We do not believe this is an "inherent" conflict of
interest. However, we think there is a problem when, as you have
described, the bank director, who is serving as a supervisory
committee member, actively participates at directors' meetings.
This participation conflicts with the proper role of a supervisory
committee member. If the bank director is, in fact, functioning
as an advisory or honorary director, then that individual's attendance
and participation at directors' meetings may violate the prohibition
against interlocking management.
BACKGROUND
You provided the following facts. An FCU director, and former
chairman of its board, accepted a position as a paid director
with a local Delaware bank within the FCU's defined community.
Upon being notified that this was a violation of the Management
Interlocks Act, he accepted the paid bank director position and
did not run for re-election to the FCU's board of directors.
However, he was appointed to the FCU's supervisory committee and
continues to participate actively in the FCU's monthly board meetings.
DISCUSSION
The purpose of the Depository Institution Management Interlocks
Act (Interlocks Act), 12 U.S.C. Ё3201-3208, as stated
in NCUA's implementing regulations, is "to foster competition
by generally prohibiting a management official from serving two
nonaffiliated depository institutions in situations where the
management interlock likely would have an anticompetitive effect."
12 C.F.R. �1.1(b). The definition of "a management
official" includes a director, honorary director, senior
executive officer, branch manager, trustee, or representative
or nominee of the foregoing. 12 C.F.R. �1.2(m). An FCU
supervisory committee member is not a management official for
Interlocks Act purposes.
We do not think it is appropriate for a supervisory committee
member to participate actively at directors' meetings. An FCU's
supervisory committee is composed of volunteers whose duties
involve auditing and reporting on the accuracy of FCU account
records, suspending directors and board committee members when
necessary, and calling special elections to consider violations
of the FCU Act, NCUA regulations, or the FCU's charter or bylaws,
or to consider any unsafe and unsound FCU practices. 12 U.S.C.
Ё1761(b) and 1761d; 12 C.F.R. �1.12; and NCUA
Standard FCU Bylaws, Art. X. In a sense, the supervisory
committee acts as a watchdog for the FCU membership. Thus, while
NCUA encourages the supervisory committee chair and members to
attend board meetings to monitor FCU activities, it is generally
inappropriate for the supervisory committee members to participate
actively in the deliberations of the board.
With this background, it is our opinion that, while the bank director
can serve as an FCU supervisory committee member, he should not
participate in FCU board meetings. This active participation undermines
the ability of a supervisory committee member to fulfill the role
of watchdog of the FCU's board of directors. It is also our opinion
that the bank director, because of his participation at directors'
meetings, could be considered an advisory or honorary director.
The obvious basis for including advisory and honorary directors
within the definition of management official is because, even
if an individual is not entitled to vote on matters coming before
the board, that individual, by participating in meetings through
expressing opinions or providing advice, has an ability to influence
the deliberations and determinations of the board. If an individual
functions as an advisory or honorary director, even without having
the title, and the credit union has assets of a $100 million or
more, then that participation arguably violates the prohibition
against management interlocks. 12 C.F.R. Ё711.2(m)(ii),
711.3.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/MSC/SAA:bhs
SSIC 3241
97-0814
cc: Region II