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4000 - Advisory Opinions

Application of Interlocks Act to Notice of Acquisition of Control


March 30, 1981

Pamela E. F. LeCren, Attorney

The Atlanta Regional Office is currently reviewing a change in bank control notice filed by *** pertaining to the ***. At your request the Legal Division has reviewed the subject application to determine whether or not the acquisition would result in a management official interlock in violation of the Depository Institution Management Interlocks Act (12 U.S.C. 3201 et sec., "Interlocks Act") and Part 348 of FDIC's regulations implementing the Interlocks Act. Based on the following, we are of the opinion that the present acquisition of control, if approved, will not result in a management official interlock.


The facts of the instant case are as follows. ***, director of ***. 1 is seeking to acquire 24.92% of the outstanding shares of ***. When that amount is aggregated with stock currently held by ***, his total holdings will equal 31.58% of the total outstanding shares. *** and *** are both located in the same SMSA. The former has total assets in excess of $20 million. (We have not been advised as to *** total asset figure.) According to information supplied by the regional office, *** will be the largest single shareholder after the acquisition is consummated. It is also stated that *** intends to increase his stock holdings to 53% of the total at some time in the future.

The Interlocks Act and section 348.3(b) of FDIC's regulations implementing the Interlocks Act prohibit two banks that are located in the same SMSA from sharing management officials when either institution has total assets in excess of $20 million. The term "management official" is defined by the Interlocks Act to include directors, officers and employees with management responsibilities, and persons who have representatives or nominees serving in such capacities. It would be unlawful for *** to serve *** as a director or officer or employee with management responsibilities while he continues to serve *** as a director. In addition, a prohibited interlock would result if *** had a representative or nominee serving *** as a management official. In short, the Interlocks Act presumes an anti-competitive result in situations where a person who is an active management official of one financial institution is represented at another competing financial institution by a person who has the ability to affect, and is privy to, management decisions of the latter.

Section 348.2(k) defines the term "representative or nominee" as follows:

(k) "Representative or nominee" means a person who serves as management official and has an express or implied obligation 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. The appropriate Federal supervisory agency or agencies will determine, after giving the affected persons the opportunity to respond whether a person is a "representative or nominee". Certain relationships (including family, employment, and agency relationships), or the ability and exercise of ability by a shareholder of a depository organization to elect a director, may be evidence of such an express or implied obligation. For the purposes of this subsection, person shall include only natural persons.

In at least one instance the Legal Division has found a representative or nominee relationship to exist based solely upon stock ownership. In that particular case, the acquiring individual was a director and officer of another bank, Bank A, in the same SMSA and was going to acquire nearly 46% of the outstanding shares of Bank B. As we stated at that time, any person with such a substantial interest in Bank B can hardly avoid taking an active interest in the management of the bank and selecting directors who serve his or her interests.

We are not able to come to the same conclusion in the case of *** inasmuch as the bank does not have cumulative voting for directors. *** cannot be assured of the ability to put even one director into office. We therefore cannot find that we will have a representative or nominee serving as a management official solely by virtue of the exercise of his voting rights.

It should be pointed out, however, that should *** acquire additional stock in *** so that he owns more than 50% of the total outstanding shares, he will have total control over the election of directors. A prohibited management official interlock based upon representatives or nominees would then, in our opinion, come into existence as a result of the exercise of his voting control.

1 *** is also a 10.66% shareholder of ***. Members of his family own an additional 11.20% and corporations in which *** is substantially interested own 7.98%. Go back to Text

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