4000 - Advisory Opinions
Dual Service as Director of Bank and Bank Holding Company under FDIC's Management Official Interlocks Regulation
December 24, 1990
Pamela E.F. LeCren, Counsel
This letter is in response to your recent request for a determination of whether the appointment of Mr. [X] as director of [Bank A] and [*** Holding Company] would create a prohibited management official interlock in violation of the FDIC's applicable regulation, 12 C.F.R. §348. I conclude that Mr. [X]'s appointment does not violate the agency's management interlock regulation.
[*** Holding Company] is a bank holding company, charted in Massachusetts, which wholly owns [Bank A], a financial institution also charted in Massachusetts. [Bank B] is a Massachusetts-chartered savings bank, which is not affiliated with [Bank A] or [*** Holding Company].
[Mr. Y] is the director of [Bank B] and the Chairman of the Board of [*** Company], which is the general partner of [*** Partnership]. [*** Partnership] is an organization which owns 48,750 shares, or 3.3% of the stock of [Bank B], and 46,500 shares, or 2.5% of the stock of [Bank A]. [Mr. Z] owns 2.5% of [Bank A]'s stock and 4.8% of [Bank B]'s stock.
[Mr. X] is an officer of *** Corporation, of Boston, Massachusetts. He does not work for and is not related to Mr. [Z] or Mr. [Y]. He owns 3,000 shares of [Bank A]'s stock.
On September 7, 1990, Mr. [Y], Mr. [Z] and Mr. [X] entered into a "standstill agreement" with [Bank A] and [*** Holding Company]. Under the agreement, Mr. [Y] and [Z] agreed to support the bank's proposal to reorganize and become a wholly owned subsidiary of [*** Holding Company], in return for which the Bank's existing board of directors would cause [Mr. X] to be appointed a director. His term would expire at the bank's 1991 shareholder's meeting at which time the board will nominate him for re-election provided that there is no "cause" to remove him as that term is defined in the bank's charter. Mr. [Y], [Z] and [X] also agreed not to acquire voting securities in excess of 9.9% of the bank over the following three years; not to participate in any effort with others to acquire control of the bank; and to vote their stock in accordance with the recommendations of the board. The agreement recognized that while Mr. [Y] and Mr. [Z] favored Mr. [X]'s appointment, Mr. [X] was to act in an entirely independent basis in his role as the institution's director. To buffer this independent role, the agreement provides that Mr. [X] is not to provide any information to others regarding [Bank A] and [*** Holding Company] that is not otherwise available to the general public. The agreement further requires as a condition precedent to Mr. [X]'s appointment as a director that the FDIC determine in writing that the appointment would not violate the Interlocks Act.
The crux of your inquiry focuses on whether Mr. [X] would be considered a "representative or nominee" under FDIC's regulations. Section 348.2(k) of the FDIC's regulations defines "representative or nominee" as follows:
Representative or nominee means a person who serves as a management official and has an express or implied obligation to act on behalf of another person with respect to management responsibilities. Whether a person is a "representative or nominee" depends upon the facts in individual cases. The appropriate Federal supervisory agency or agencies will determine, after giving the affected persons the opportunity to respond whether a person is a "representative or nominee." Certain relationships (including family, employment, and agency relationships), or the ability and exercise of ability by a shareholder of a depository organization to elect a director, may be evidence of such an express or implied obligation.
After carefully considering the facts as set forth above, we have concluded that Mr. [X] would not be considered a "representative or nominee" for the purposes of section 348.2(k). First, even if we were to attribute the shares owned by Mr. [Z] to Mr. [Y], a 5% ownership interest in [Bank A] is not sufficient to warrant finding representative or nominee status.
Second, Mr. [X], Mr. [Y] and Mr. [Z] have shared no prior relationships which would indicate a representative or nominee relationship. There is no family relationship between the three men. Additionally, there is no previous standing business relationship between them. Neither Mr. [Y] nor Mr. [Z] has ever employed Mr. [X].
Third, Mr. [Y] and Mr. [X] as well as Mr. [Z] have made an affirmative representation that Mr. [X] is not to act as a representative or nominee of Mr. [Y], formally indicating Mr. [X]'s intent to exercise independent judgement and faithfully discharge his duty as a director of [Bank A] and [*** Holding Company].
Finally, Mr. [X] is barred under the agreement from passing on information to Mr. [Y] and Mr. [Z] that is not otherwise publicly available. But for such a provision, the FDIC would be concerned about a flow of information between [Bank B] and [Bank A] which could prevent an atmosphere of open competition between the two institutions. Nevertheless, the agreement seems to preclude such a problem, serving to further indicate the lack of a representative or nominee relationship between Mr. [X] and others.
The appointment of Mr. [X] will not result in a violation of Part 348 as he will not be considered a representative or nominee of Mr. [Y] or Mr. [Z] within the meaning of section 348 of the FDIC's regulations. This opinion is based, however, upon facts known to this agency at the present time. Should new information become available or the facts change, the substance of this opinion may change.