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4000 - Advisory Opinions

Management Official Interlocks--Excepted Service


February 10, 1984

Pamela E. F. LeCren, Senior Attorney

The following is in response to your request for the Legal Division's comments and opinion regarding the captioned request for an exception from the prohibitions of the Management Official Interlocks Act ("Interlocks Act." 12 U.S.C. 3201 et seq.) under section 348.4(b)(1)(ii) of FDIC's regulations. Section 348.4(b)(1)(ii) of FDIC's regulations permits an otherwise prohibited interlock between two depository organizations where one of the depository organizations is managed or controlled by members of a minority group and the individual's service in question is necessary to provide the minority depository organization with management or operating expertise. The excepted service may not continue for more than five years.

The instant application can be characterized as a "reverse exception request" in that * * *,1 is requesting that * * *, currently a director of * * * * * * (successor to * * *, a "long-term problem minority bank") be permitted to stand for election as a director of the * * *.2 We use the term "reverse exception request" inasmuch as * * * is presently serving a minority bank and wishes to serve a bank holding company that is neither controlled or managed by members of a minority group nor falls into any of the other situations for which exceptions are available.3

The Legal Division in commenting upon an earlier "reverse exception request"4 concluded that the exception could be available despite the fact that the individual in question is already serving the institution that the exception was designed to benefit. Whether or not the exception is available depends upon three things: (1) whether the individual in question does in fact provide, in this case, the minority bank with management or operating expertise, (2) whether the institution could replace the individual with someone equally suited to provide such management or operating expertise without utilizing the services of someone whose service would be unlawful under the Interlocks Act if the individual terminates his/her service with the minority institution, and (3) is there any indication that the individual will in fact terminate his/her service with the institution if the exception request is denied.

Based upon a reading of Regional Director Halverson's January 27, 1984 memorandum, we feel that all three questions can be resolved favorably and that the exception is therefor available in the discretion of the Board of Directors.5

1 * * * is a registered multi-bank holding company whose lead bank, * * *, is located in * * *. Go back to Text

2 A management official interlock between * * * and * * * would be prohibited under section 348.3(a)(3) of FDIC's regulations as amended effective November 30, 1983 (48 Fed. Reg. 50296). Go back to Text

3 Institutions located in low income or economically depressed areas, newly chartered institutions, institutions facing conditions endangering safety and soundness, and institutions facing disruptive loss of management officials due to a change in circumstances are all eligible for limited exceptions from the prohibitions of the Interlocks Act. Go back to Text

4 See Legal Division's July 14, 1980 memorandum to * * *, review section chief, concerning a request under the newly-chartered bank exception from * * *. Go back to Text

5 According to Regional Director Halverson's memorandum, * * * * * * has benefited from * * * service and the continued existence of the bank whose predecessor, * * * failed in 1982 is "in part attributable to * * * efforts and commitment to the future of this minority institution." The bank is described as benefiting from * * * extensive business background, his many civic and charitable affiliations, and the continuity of management his service provides. (* * * had been a director of the bank's predecessor.) The regional office anticipates that * * * will resign his position at * * * if the exception request is denied. Although Regional Director Halverson's memorandum does not specifically address whether or not another individual could equally service the bank's needs without running afoul of the Interlocks Act, we surmise that it could prove difficult to attract management to the bank because of its past history and recent internal control battles and furthermore, that because of the bank's location, it could prove difficult to find management not already serving another depository institution. Go back to Text

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