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4000 - Advisory Opinions

FDIC's Management Official Interlocks Regulation Does Not Prohibit Sharing of Officers Between Unaffiliated Nondeposit Subsidiaries of Insured State Nonmember Banks Where Subsidiaries Merely Perform Investment Functions of Parent Banks


July 18, 1991

Gerald J. Gervino, Senior Attorney

You have inquired concerning the application of the Depository Institution Management Interlocks Act, Pub. L. 100--650, 12 U.S.C. § 3201 et seq., ("Interlocks Act"), and our regulations issued under that Act, 12 CFR Part 348 (1991) ("Part 348"), to certain nondeposit subsidiaries of banks.

You intend to establish wholly-owned operating subsidiaries of unaffiliated banks. Each bank will contribute cash, stock and securities to its subsidiary, which will manage, invest and reinvest the cash and securities contributed to it from the bank. The officer of the subsidiary will be responsible for placing investment orders and preparing reports. In some instances, the subsidiaries will be located out of state and the subsidiary may wish to employ the same officer as is employed by another similar subsidiary in order to reduce costs. From our telephone conversation, we understand that these subsidiaries will be taking over the investment function of the parent bank and will not be receiving deposits or performing other customer service functions.

You feel that Part 348 of our regulations does not apply to interlocks between subsidiaries of deposit institutions. You further opine that the sharing of subsidiary employees would not violate Part 348, regardless of § 348.1(b) of our regulations.

We agree that Part 348 of our regulations does not prohibit the sharing of officers between unaffiliated nondeposit subsidiaries of insured State nonmember banks, where the subsidiaries merely perform the investment functions of the parent banks. Section 348.1 of our regulations states that the purpose of the Interlocks Act is to foster competition by prohibiting dual service as a management official of two unaffiliated depository institutions or depository holding companies. The following language that applies Part 348 to management officials of insured nonmember banks and their affiliates includes only depository affiliates, since they are the only affiliates included in the prohibitions that follow.

If we have not completely answered your inquiry or you have any further questions, please write or call us.

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