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4000 - Advisory Opinions


Request for Exemption from Prohibitions of Interlocks Act

FDIC-82-22

November 16, 1982

Pamela E. F. LeCren, Senior Attorney

The following is in response to your request for the Legal Division's comments regarding the subject application seeking permission for *** to establish a management official interlock between the *** a proposed commercial bank and ***, also a proposed commercial bank. The application is made pursuant to section 348.4(b)(2) of FDIC's regulations which permits an otherwise prohibited management official interlock between two banks when one of the institutions is a "newly-chartered" institution.1

According to Regional Director Burr's October 13, 1982 memorandum, the State of *** approved the application of *** on August 2, 1982. The bank's application to the FDIC for deposit insurance has not been acted upon to date. The application of *** to the State of *** was, as of October 13, 1982, being reviewed by the state and no deposit insurance application had been filed with the FDIC. The application was received, however, on October 18th. It is anticipated that neither bank will have total assets in excess of $20 million and therefore the prohibition extending to banks located in the same SMSA would not be triggered. The prohibition on banks located in adjacent communities is applicable however as *** and *** are located less than ten miles from each other.

Section 348.4(b)(2) provides as follows:

Newly-chartered organization. A person may serve at the same time as a management official of two depository organizations (or any affiliate thereof) if one of the depository organizations is a newly-chartered organization, subject to the following conditions: (i) no interlocking relationship permitted by this paragraph shall continue for more than two years after the newly-chartered organization commences business; (ii) the appropriate federal supervisory agency or agencies determine the relationship to be necessary to provide management or operating expertise to the newly-chartered organization; and (iii) other conditions in addition or in lieu of the foregoing may be imposed by the appropriate federal supervisory agency or agencies in any specific case. [emphasis added]

The Legal Division has interpreted the term "necessary" to mean that adequate expertise is not available to the institution without utilizing the services of an individual whose service would violate the Interlocks Act. The availability of the exception therefore hinges upon two questions: (1) whether or not *** possesses a level of expertise which would be valuable to the institutions involved, and (2) the availability of other persons with banking expertise who could serve the banks and whose service would not pose problems under the Interlocks Act.

The Legal Division was not provided with a copy of the instant application, however, Regional Director Burr's memorandum indicates that the application describes *** to be a prominent member of a minority group and as having management skills and administrative expertise that would prove invaluable. We will presume for the purpose of this memorandum that *** does in fact possess a certain amount of expertise that would be valuable to the banks in as much as Regional Director Burr's memorandum does not take issue with the element of our two-fold test would therefore appear to be satisfied.

As to the second element, the Legal Division has been and continues to be of the opinion that a bank, in order to establish the "necessity" of an individual's service, must at least demonstrate that an unsuccessful effort was made to locate management expertise that would not cause a problem under the Interlocks Act. Regional Director Burr's memorandum does not reflect to what extent if any *** sought to locate an individual to serve as director whose service would not pose a problem under the Interlocks Act. If the applicant has in fact not demonstrated that such a search was conducted, it may be appropriate to request information relevant to what effort if any was made by the bank prior to recommending a disposition on the application. If the Regional Office is of the opinion that such a search would be successful and none in fact was conducted, denial may be appropriate.

Based on the information provided, and assuming that no search was conducted, the Legal Division would concur in Regional Director Burr's recommendation that the request for exemption be denied as "no exigent circumstances requiring *** reportedly special skills" would seem to exist (See Regional Director Burr's memorandum, page 1, item 3.)

1 Part 348 of FDIC's regulations implements the Depository Institution Management Interlocks Act (12 U.S.C. 3201 et seq., "Interlocks Act"). In general the Interlocks Act prohibits two unaffiliated banks from sharing management officials (directors, advisory or honorary directors, employees or officers with management functions) if those institutions are located in the same community or SMSA or are of major asset size. The term "community" encompasses cities, towns, or villages that are adjacent or contiguous. Adjacent cities, towns, or villages are defined as those whose boundaries are less than ten miles apart. Institutions in the same SMSA may establish an interlock unless one or both of the institutions has total assets in excess of $20 million. While the regulations do not define the term "newly-chartered," the term has been construed by the Legal Division to mean an institution that has been in operation for less than two years. Go back to Text


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