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4000 - Advisory Opinions

Management Official Interlock Resulting from "Representative or Nominee" Status--Proposed


November 21, 1979

Pamela E. E. LeCren, Attorney

*** (a proposed bank) has applied to the FDIC for deposit insurance. In connection with the review of that application, the *** Regional Office has raised the question of whether or not a management official interlock prohibited by the Depository Institution Management Interlocks Act ("Title II" of FIRIRCA) would result if the bank were to commence operation with the slated directors. The following opinion is in response to that question.

Title II generally prohibits banks that are located in the same, contiguous, or adjacent cities, towns, or villages from sharing the same management officials. Section 348.2(a) of FDIC's regulations implementing Title II defines adjacent cities, towns, or villages as being cities, towns, or villages that are within ten miles of each other at their closest points. *** is to be located in *** is in turn within ten miles of *** is located in *** as a result of which *** and *** may not share management officials.

A management official is defined to include (among other things) a director, an officer with management functions, an employee with management functions, and any person who has a representative or nominee serving in any such capacity.1 There is no direct management official interlock between *** and *** however, we have been asked to determine whether or not an indirect management official interlock exists between the two institutions (i.e., resulting from the presence of a representative or nominee). If any such interlock exists it would exist because ***, the chief executive officer of *** has a representative or nominee serving as a management official at ***.

The following are the facts based on which the regional office feels an indirect interlock may exist. A company owned by proposed director *** has an extension of credit outstanding from *** also has outstanding a "small personal note." *** a proposed director, was recommended for the position by ***. Proposed director *** is the "former" son-in-law of *** and has an extension of credit outstanding from ***, a proposed director, has outstanding extensions of credit from *** which were listed for technical exceptions in the report of examination of ***. ***, a proposed director, has a loan outstanding from *** and is "believed . . . to be influenced" by ***. *** has subscribed to 10 percent of the stock in *** and is thus one of its controlling shareholders.

Although the facts noted by the *** Regional Office may in some circumstances give rise to the presence of a representative or nominee, they do not do so in this particular instance. The existence of an obligation to act in another's behalf is central to the concept of representative or nominee as contained in the proposed amendment. A controlling shareholder is not considered as having a representative or nominee on the board of directors merely because of having placed someone on the board. That fact is significant only if other facts (1) show a relationship between the stockholder and the director or (2) raise the inference that an obligation to act on the stockholder's behalf is present. Certain relationships between persons (i.e., family, employment, agency) will give rise to an inference that one individual is the representative of the other. There are no such relationships between *** and ***. The past family relationship between *** and *** does not qualify. A representative or nominee may also exist as a result of an express or implied agreement. A case by case analysis is required with regard thereto. The primary connection between *** and the referenced proposed directors is that they are in debt to the bank at which *** is the chief executive officer. That fact alone does not warrant finding an implied agreement by any one of the borrowers to act on *** behalf.2 The fact that *** was recommended for the position of director by *** is not significant in the absence of any relationship between them and because *** had no control or influence over the actual selection of the proposed directors.3 That *** is "believed to be influenced" by *** is not a sufficient basis on which to find a representative relationship without more being demonstrated. Management officials are often influenced by any number of persons and circumstances. That influence would have to rise to the level of an obligation before we would be warranted in finding a representative or nominee.

1 A proposed amendment to Part 348 of FDIC's regulations implementing Title II contains the following definition of representative or nominee:
  "Representative or nominee" means a person who serves as a management official and has an express or implied duty 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. Certain relationships, including family, employment, or agency relationships, are normally considered sufficient to establish the existence of such an express or implied duty. The ability of a shareholder of a company to elect a director and the exercise of this ability does not make the director the representative or nominee of the shareholder on the basis of these facts alone. However, if the director has some relationship with the shareholder, for example, a duty arising from an agreement or understanding between the shareholder and the director with regard to the director's management responsibilities, the director is the "representative" of the shareholder. If a person is entitled to a position on the board of directors and that person asks another to serve in that position that other person is considered a "representative or nominee."
  The amendment is still proposed and may or may not be changed as a result of public comment. Go back to Text

2 For example, if the borrower was not credit worthy, *** was instrumental in seeing that the loan was extended, and the loan was made close in time to or contemporaneously with the borrower being named as a proposed director, there might be grounds to find an implied agreement by the borrower to act in *** behalf or to find an obligation to so act. Go back to Text

3 The selection of proposed directors was made by the proposed president, *** who has indicated that *** played no part in the selection process. Go back to Text

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