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4000 - Advisory Opinions

Change of Indirect Control of Bank Would Require Prior Notice under Change in Bank Control Act


February 10, 1984

Roger A. Hood, Assistant General Counsel

This is in response to your February 8 letter to Deputy General Counsel Douglas H. Jones regarding the applicability of the Change in Bank Control Act (12 U.S.C. 1817(j) to a corporate reorganization intended to convert direct bank ownership by stockholders into indirect ownership through a holding company.

As described in your letter, the present owners of the bank's common stock will exchange their stock for stock in a newly formed corporation. The exchange will result in each owner having the same percentage of ownership in the corporation as previously held in the bank. Because the bank is primarily engaged in trust and fiduciary activities, it is your opinion that the bank does not come within the definition of "bank" in the Bank Holding Company Act. (We accept this as an assumed fact and express no opinion with regard to the applicability of the Bank Holding Company Act.) Accordingly, the subject transaction would not be subject to the provisions of the Bank Holding Company Act, which would have the effect of exempting it from the requirements of the Change in Bank Control Act.

Although the change of ownership of the bank's stock from individual owners to the corporation which, in turn, is owned by the individual owners creates a technical change of control of the bank, the effective control of the bank remains unchanged because each owner retains the same percentage ownership of the parent corporation as he or she previously held in the bank. For this reason we believe that, despite the technical change of direct control, there is no change in effective control, and that no purpose would be served by requiring prior notice of the transaction under the Change in Bank Control Act.

As indicated in your letter, subsequent changes in the ownership of the corporation which owns the bank stock would be viewed as changes in the indirect ownership of the bank, and anyone acquiring control of such company within the standards prescribed by the Change in Bank Control Act would be deemed to have acquired control of the bank. Assuming still that the corporation does not qualify as a bank holding company under the Bank Holding Company Act, the change of indirect control of the bank would require prior notice under the Change in Bank Control Act.

I would emphasize that our views in this regard are limited to the narrow facts as presented in your letter, and should not be interpreted as an indication of our views on other situations arising from different facts involving rearrangements of ownership, a corporation owning one or more other banks, changes involving mergers of institutions, and the like.

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