4000 - Advisory Opinions
Applicability of FDIC Restrictions on Affiliate Engaged in Securities Activities Permissible Under the Glass-Steagall Act
April 21, 1986
Pamela E. F. LeCren, Senior Attorney
In response to your April 2, 1986 inquiry, please be advised that the restrictions of sections 337.4(c) and 337.4(e) of FDIC's regulations (12 C.F.R. 337.4(c), (e)) do not apply in the case of an affiliate of an insured nonmember bank that engages solely in securities activities that are permissible under the Glass-Steagall Act directly to a bank.
With respect to your question regarding any FDIC restrictions on dual employment relationships between insured nonmember banks and securities companies, the "rule" you reference is in reality an informal policy which until it was recently rescinded was enforced on a case-by-case basis through the FDIC regional offices. The policy applied in instances in which an individual sought to become an officer, director or employee of both an insured nonmember bank and registered representative of a securities dealer. If, in the judgment of the regional director, the dual employment was expected to give rise to a substantial conflict of interest, the regional office could request that the bank's board of directors enter into a resolution indicating that the bank would not: (1) Enter into or engage in any transaction involving the purchase, sale or transfer of any stocks, bonds or other securities through that particular securities dealer, or with the individual in his capacity as a registered representative or in his individual capacity; (2) Allow the officer, director or employee in question to use the bank premises for the conduct of his securities business nor allow the individual, while acting as an official of the bank, to solicit business from the bank's customers or others; or (3) Make any loan to any person or persons directly or indirectly for the purpose of providing funds with which the borrower may acquire securities from or through the officer, director or employee or his representative. If the dual employment was discovered in the context of the applications process, restrictive covenants to the same effect were often incorporated in final orders approving the application.
The adoption of section 337.4 supplanted this policy insofar as affiliates or subsidiaries of insured nonmember banks were concerned. Pursuant to an April 8, 1986 directive from the FDIC's Director of the Division of Bank Supervision to all regional directors, the informal policy was rescinded "in favor of a supervisory approach that addresses specific abuses or unsound practices on a case-by-case basis."
Finally, in response to your last question, the FDIC does not impose any restrictions on margin transactions by a bank's subsidiary or affiliate. The FDIC does check, however, for compliance with Federal Reserve Board Regulation U (12 C.F.R. 221).