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4000 - Advisory Opinions

Application for Insurance--Management Official Interlock under Part 348


April 9, 1980

Pamele E. F. LeCren, Attorney

The following is in response to Regional Director Sarsfield's request for an opinion on the eligibility of *** under the Depository Institution Management Interlocks Act ("Title II" of FIRIRCA) to serve *** (a proposed bank) as a director. *** is among the list of proposed directors that was filed as part of the bank's federal deposit insurance application.

The Depository Institution Management Interlocks Act and Part 348 of FDIC's regulations which implement the Act generally prohibit the sharing of management officials by two nonaffiliated depository institutions depending upon their size and location. *** is currently serving four existing banks three of which are located in the same SMSA as the proposed bank.1 All four banks have total assets of less than $20 million and are located in cities, towns, or villages that are more than ten miles from ***. Title II does not prohibit a management official interlock between two banks that are located in the same SMSA if both institutions have assets of less than $20 million. Such an interlock is prohibited however, regardless of the asset size of the institutions, if the banks are located in the same city, town, or village or are located in adjacent or contiguous cities, towns, or villages. Section 348.2(a) defines adjacent cities, towns, or villages as those that are located within ten miles of each other at their closest points. Under the facts as presented, the dual service of *** as a management official at these four banks and the proposed bank would not result in an interlock prohibited under Title II.2

*** presence at the proposed bank as a director would be prohibited if he is the "representative or nominee" of his father, ***, who is currently serving as a director of ***. *** is located in the same SMSA as the proposed bank and has total assets in excess of $20 million.3 If *** is the representative or nominee of his father, then *** will be considered a management official of *** and the proposed bank and a prohibited interlock will result.4

The FDIC recently adopted an amendment to Part 348 (§ 348.2(k)) which defines the term representative or nominee to refer to a person who serves as a management official and who has an express or implied obligation to act on behalf of another with respect to management responsibilities. A family relationship between two persons both of whom are management officials at different depository institutions will give rise to the inference that an express or implied obligation to act on the other's behalf exists between the two persons. Such a relationship will not in and of itself cause a person to be considered the representative or nominee of another but that fact along with other relevant facts may give rise to such a determination. According to information provided by your office both *** and *** are attorneys who have been active in the organization of many of the small banks in the area. Although father and son share office space, they have separate law practices. There is no partnership nor employee/employer relationship between them. *** is, in the estimation of your office, fully qualified to be a director of the proposed bank on the basis of past experience and education. He has subscribed to 1-1/2 percent of the stock of the proposed bank for which he will pay out of his own funds. We do not have any information indicating that *** name was placed among the proposed directors at his father's insistence or that *** was in any way responsible for the naming of his son as a director. Nor can we say that *** was selected solely to serve in lieu of his father who could not serve the proposed bank due to his association with ***.

We would find it difficult, based on the facts available to us at this time, to determine that *** is his father's representative or nominee thus making his father a management official of two banks in the same SMSA.5 If there were reason to find that the network of banks in the SMSA with which father and son are associated as directors and shareholders tend to act in concert or in response to one another or that the voting pattern of father and son was the same, we might find sufficient reason to ask *** to present arguments on why no representative or nominee relationship should be found to exist. If *** were to vote his son into office either through the exercise of his own stock6 or in conjunction with the exercise by *** of his own voting rights, we might be likely to ask that the same showing be made. If information were available that demonstrated that the correspondent relationship between *** and the other banks in the network was not conducted on an arm's length basis, we would request the presentation of arguments on whether or not a representative or nominee relationship exists.

The information forwarded to this office also indicates that *** wife, was elected to the board of directors of *** to fill a vacancy created when *** resigned from the board of directors. Although *** had total assets of less than $20 million as of December 31, 1979, it is expected that the assets will have exceeded that figure by the time the March 31, 1980 report of condition is filed. If that is the case, a prohibited management official interlock may be created between *** and the proposed bank should *** become a director of the proposed bank and his wife is found to be his representative or nominee. Inasmuch as we are told that *** is not qualified to be a bank director, it is our opinion that an implied obligation to act on behalf of *** is present. If no persuasive argument to the contrary is presented by ***, or a representative of the proposed bank, we are prepared to find that *** is her husband's representative or nominee making *** a management official of *** and the proposed bank should he accept the directorship at the new bank.7 The affected parties should be given an opportunity to respond to our preliminary finding before *** is determined to be ineligible to serve as a director of the proposed bank. Any information presented to respond to this preliminary finding should be forwarded to this office for review so that a final determination can be made.

1 ***. Go back to Text

2 Although it does not alter our analysis, it should be noted that *** service at the existing four banks would be grandfathered under section 206 of Title II and section 348.5 of FDIC's regulations if his service began prior to November 10, 1978 and his service was not in violation of section 8 of the Clayton Act (15 U.S.C. § 19) at that time. Go back to Text

3 *** also serves on the board of directors of several other banks in the same SMSA. All of the banks, with the exception of ***, have assets of less than $20 million. We are told that *** is typically involved in bank organizations, purchases various amounts of stock in the new institutions, accepts a seat as a director and will often serve as bank counsel after the banks open for business.
  4 Title II and section 348.2(h) define the term "management official" to include directors, officers with management functions, employees with management functions, and any person who has a "representative or nominee" serving in any of the above capacities. Go back to Text

5 We do feel however that because of the close relationship between *** and the banks in the network the situation warrants careful monitoring as a representative or nominee relationship could arise in the future. Go back to Text

6 *** has subscribed to 5 percent of the stock of the proposed bank. Go back to Text

7 Title II was in our opinion specifically intended to reach those instances where an individual is named as a management official solely to serve in the stead of someone who could not directly serve in the position. That would appear to be the case here. Go back to Text

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