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4000 - Advisory Opinions

Request for Exemption from Interlocks Act


July 14, 1980

Pamela E. F. LeCren, Attorney

In a letter dated May 14, 1980 *** requested, on behalf of its subsidiary *** that *** be permitted to serve *** as an advisory director while continuing to serve *** in his current position as director. Such dual service by a management official at two depository institutions located in the same SMSA is expressly prohibited by the Depository Institution Management Interlocks Act (12 U.S.C. 3201 et seq. "Interlocks Act"). The Board of Directors may, however, permit an otherwise prohibited interlock under Part 348 of FDIC's regulations which were adopted pursuant to the Interlocks Act. Specifically section 348.4(b) authorizes the Board to give prior approval for the creation of an otherwise prohibited interlock in certain circumstances and if certain conditions are met.

The request for prior approval to create an interlock has been made under section 348.4(b)(2) which allows an individual to serve two depository institutions, one of which is newly-chartered, if the individual's service is necessary to provide operating and management expertise to the newly-chartered institution.1 The Legal Division has interpreted the term "necessary" to imply that (1) the subject individual must have a certain degree of expertise to provide the institution in question and (2) adequate expertise is not available to the institution without utilizing the services of an individual currently serving elsewhere whose service would violate the Interlocks Act. In the instant case the newly-chartered institution is being served by an individual who wishes to concurrently serve elsewhere. Whether or not that individual can do so under section 348.4(b)(2) depends upon several things: (1) does *** service at the newly-chartered institution provide it with management and operating expertise, (2) if *** were to terminate his association with the bank, could the bank replace him with a person equally suited to provide the bank management and operating expertise without utilizing the services of someone who would cause an interlock problem, and (3) is there any indication that *** will terminate his association with the bank if he is unsuccessful in obtaining permission to serve both the savings and loan association and the bank.

Even assuming that *** provides operating and management expertise to *** there is no indication that he would withdraw that expertise in order to serve the savings and loan association nor is there any reason to believe that, if he were to withdraw his services, *** could not replace him without utilizing the services of an individual who would not cause an interlock problem. Based on the information available at this time, we concur in the regional office recommendation that the request be denied.2 In preparing your recommendation on this request you may wish to assess more closely the likelihood that *** will terminate his association with *** the ability of *** to expeditiously obtain management if he does so, and what effect his termination would have on the bank in the interim. If it would be determined that a replacement could be found but not without adversely affecting the bank, the proper recommendation may be to grant the request.

1 The above request has been submitted to the Federal Home Loan Bank Board as required by the language of section 348.4(b)(2). It is our opinion that the FDIC is the proper agency to act first in regard to the request as the institution falling within the scope of the exception is a state nonmember insured bank. The question of whether or not *** service is necessary to the savings and loan association is not relevant inasmuch as the savings and loan does not fall into any category of institution to which the possibility of a permissible interlock is extended under section 348.4(b). Staff at the FHLBB have indicated that should *** service be found necessary to provide management and operating expertise to *** FHLBB would defer to our decision and permit the dual service. Go back to Text

2 The exception for a newly-chartered institution does not extend beyond the second anniversary of the bank's opening. Even if *** were successful in his request, he would have to terminate the dual service no later than January 5, 1981. Go back to Text

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