FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Bank and Company are Affiliated for Purposes of § 23A of the Federal Reserve Act if Both Have Common Shareholders Who Own in the Aggregate at Least 25% of the Stock of Each the Bank and the Company
January 14, 1992
Pamela E.F. LeCren, Counsel
As per your request, I am writing to confirm that it is in fact the FDIC's opinion that a bank and another company are affiliated for the purposes of section 23A of the Federal Reserve Act (12 U.S.C. 371c) if the bank and the company have common shareholders who own, in the agrregate, at least twenty-five percent of the stock of each the bank and the company.
We find that the Federal Reserve Board opinion cited in our September 19, 1991 letter (FRRS 3--1146.6) is precisely on point and that we need go no further in our response to find support for our opinion. Nonetheless we will point out that this interpretation has to the best of our knowledge been long held by the Federal Reserve Board. From 1933, until 1982, section 23A looked to the general definition of "affiliate" as contained in section 2(b) of the Banking Act of 1933 (12 U.S.C. 221a(b)). Clause two of that section covers common control by shareholders of a bank and another company without regard to any conspiracy or other joint action theory. Digest of 1933 Bulletin 501, reprinted in Published Interpretations of the Federal Reserve System Par. 4505. Although the definition of affiliate subsequently changed to what is found at section 23A(b)(1)(C), the change only lowered the percentage of ownership necessary for affiliation. Nothing indicates that there was any intent to impose the type of requirement that you suggest and the Federal Reserve Board interpretation cited in our letter clearly reflects that the Federal Reserve Board has not reversed its thinking on the issue.
You point out that the above referenced interpretation contains a reference to a "group of shareholders" which reference, in your opinion, signifies a need for the shareholders to have some relationship or to be acting in concert. We decline to join you in your opinion. The reference to a "group of shareholders" has in our opinion no greater significance than to convey that the shares owned by the common shareholders are aggregated for the purposes of applying the 25 percent test. To conclude otherwise would be contrary to the explicit language of the letter. Finally, section 23A does not require "actual" control in order for an affiliate relationship to exist. It is patently clear that a bank and a company will be considered affiliates if one person owns 26 percent of the stock of a bank and of a company even if another person owns a greater percentage of one, or both, of the entities.
As to the Regulation O matter, please be advised that we do not object to a nonmember bank paying a housing allowance per se. Our objection to the allowance as instituted at [Bank] is dependent upon the particular facts as described in our letter which lead to the conclusion that the bank is in effect making a preferential loan to certain of its executive officers. As indicated in our letter, the bank had not been able to persuade us that the housing allowance was bona fide compensation inasmuch as no argument had been offered that the allowance was based upon anything other than the difference between the stated interest rate on the loans in question and the bank's cost of funds.