FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Principal Shareholder Status Under Regulation O
October 29, 1979
Pamela E. F. LeCren, Attorney
The following is in response to your request for an opinion regarding the interpretation of the term "principal shareholder" under Federal Reserve Board Regulation O (12 C.F.R. Part 215) implementing section 22(h) of the Federal Reserve Act.1 Section 215.2(j) of Regulation O defines a "principal shareholder" as an individual or a company that directly or indirectly, acting through or in concert with one or more persons, owns, controls, or has the power to vote more than 10 per cent of the stock of a bank. In addition, the definition attributes shares owned or controlled by members of an individual's immediate family to that individual. Your request sets out a number of hypotheticals regarding stock held in trust and asks (1) whether or not the trustees and beneficiaries are principal shareholders under Regulation O, and (2) how the attribution rule applies under the circumstances.
Initially let us point out that in our opinion use of the phrase
"owns, controls, or has the power to vote" demonstrates an intent
to reach all those persons who control 10 per cent or more of the stock
of a bank whatever form that control may take. The attribution rule
basically presumes that immediate family members who own or control
stock are subject to direct or indirect control by other family members
and thus may be influenced in the voting of their stock. We do not find
it necessary that an individual actually utilize stock control in order
to gain personal advantage before considering that individual to be a
principal shareholder. All that is necessary is the ability to do so.
1. Stock Held by a Trustee.
We agree that a trustee who has the sole authority to vote stock
held in a trust is a principal shareholder under Regulation O if the
trust holds 10 per cent or more of the stock of a bank.
2. Attribution of Trustee's Interest in Stock.
In our opinion, shares controlled by a trustee by virtue of sole
authority to vote stock should be attributed to the trustee's immediate
family members in accordance with the rule on attribution found in the
We do not feel that the fiduciary obligation a trustee owes to the
beneficiary of a trust precludes the trustee from abusing control of
the stock. The trustee is still perceived to wield that control despite
the trust relationship and may influence bank personnel. In addition,
it is totally conceivable that the trustee could vote the stock in a
manner consistent with (1) the safe and sound operation of the bank,
and (2) the fiduciary obligation owed the beneficiary and still vote
the stock in his/her own self-interest. If the family relationship
which is the basis for the attribution rule is present, there is no
reason not to attribute the shares controlled by the trustee to the
immediate family members.
3. Aggregation of Trustee's Interest in Separate Trusts.
It is our opinion that all stock controlled by a trustee (albeit
held in different trusts for different beneficiaries) should be
aggregated in determining whether or not the trustee is a 10 per cent
shareholder. Once again the separate and distinct fiduciary obligations
owed to different beneficiaries do not preclude considering the stock
to be controlled by the trustee within the meaning of Regulation O.
4. Trust Beneficiaries.
In our opinion a beneficiary of a trust that holds more than 10 per
cent of the stock of a bank is a principal shareholder if
the beneficiary can direct the voting of the stock, terminate the
trust, remove the trustee or otherwise control the voting of the stock.
The beneficiary is not a principal shareholder (i.e.,
"owner" within the meaning of Regulation O) if he/she merely
reaps the economic benefit of stock
5. Custodian Under the Uniform Gift to Minors Act.
As the custodian of stock held in accordance with the Uniform Gift
to Minors Act has sole voting authority over the stock, the custodian
would be considered a principal shareholder if more than 10 per cent of
the stock of a bank was so held.
6. Attribution Within Context of Uniform Gift to Minors Act.
For the same reasons cited in the discussion found in paragraph No.
2, we feel that the stock controlled by a custodian of a UGMA trust is
to be attributed to immediate family members.
7. Interest of Minor Under UGMA Trust.
The minor will not be considered to own or control the stock held
(as he/she has no authority to direct how the stock is voted) unless
the minor is able to exercise control indirectly through some other
8. Aggregation of Stock Controlled by UGMA Custodian.
All stock controlled by the custodian of several UGMA trusts should be aggregated in determining whether or not the custodian is a principal shareholder.
1 Section 22(h) was added to the Federal Reserve Act by section 104 of Title I of the Financial Institutions Regulatory and Interest Rate Control Act of 1978 (12 U.S.C. 375(b)). Go back to Text
2 In any event, attribution would only occur when the immediate family member owned or controlled stock in the bank. If, for example, the trustee's spouse owned no stock whatsoever, attribution would not take place. Go back to Text
3 In our opinion the "owner" of stock for the purposes of Regulation O is someone whose "ownership" is characterized by the incidents of ownership that signify control, i.e., right to sell or dispose, right to exercise dominion, right to use. Go back to Text