Full text of Federal Reserve Bank of New York Circulars : 6547. Interpretation of Regulation L

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F E D E R A L R E S E R V E BANK
O F NEW YORK

C ir c u la r N o . 6547
M ay 22, 1970

!l

IN T E R PR E T A T IO N O F REGULATION L
In terlo ck in g R e la tio n sh ip B etw een Member Bank
and Bank H olding Company

To the Member Banks o f the Se c o nd F e d e r a l R e s e r v e Di st ri c t :

Printed b e l o w is an excerpt f r o m the Federal Register of M a y 20, containing the text of
an interpretation of Regulation L of the B o a r d of G o v e r n o r s of the Federal R e s e r v e S y s t e m
regarding the applicability of Section 8 of the Clayton Act and Regulation L to b a n k

holding

companies.
Additional copies of this circular will be furnished upon request.
Alfred Hayes,
President.

Title 12— BANKS AND BANKING
Chapter II— Federal Reserve System
SUBCHAPTER A— BOARD OF GOVERNORS O f
THE FEDERAL RESERVE SYSTEM
[Reg. L]

PART 212— INTERLOCKING BANK RE­
LATIONSHIPS UNDER THE CLAYTON
ACT
Bank Holding Companies
§ 2 1 2 .1 0 2
A p p lic a b ility o f se c tio n 8 o f
t h e C la y to n A ct to b a n k h o ld in g
c o m p a n ie s .

(a) The Board recently was asked
whether section 8 of the Clayton Act (15
U.S.C. 19) and Federal Reserve Regula­
tion L, “Interlocking Bank Relationships
Under The Clayton Act” (this Part 212),
prohibit an officer, director, or employee
of a member bank from serving at the
same time in any such capacity with a
holding company the principal activity of
of which is the ownership and control of
banks, where such interlocking service
between the member bank and a bank in
the holding company system would be
prohibited.
(b) Section 8 and Regulation L, with
certain exceptions, prohibit any person
who is a director, officer, or employee of
any member bank from serving in any
such position with “any other bank,
banking association, savings bank, or
trust company” where the two banks are
located in the same, contiguous, or adja­
cent cities, towns, or villages.
(c) In a similar situation involving
section 32 of the Banking Act of 1933 (12




UJ5.C. 78)—which prohibits interlocking
personnel relationships between member
banks and securities companies—the
Board expressed the view that where the
principal activity of a holding company
is the ownership and control of a bank or
banks, the holding company and each
member bank subsidiary should be con­
sidered as constituting together a single
entity for the purpose of that statutory
provision. Accordingly, the Board con­
cluded that section 32 prohibits a person
who is primarily engaged in section 32
business, or associated as specified in
that section with an organization so en­
gaged, from serving also as an officer,
director, or employee of such a holding
company (1969 Federal Reserve Bulletin
52; §218.114 of this chapter). In that
interpretation, the Board stated: *** • •
the affairs of the member bank and the
holding company would be so closely
identified and functionally related that
the same possibilities Of abuse which sec­
tion 32 was designed to guard against
would be present in the case of a director
of the holding company as in the case
of a director of the member bank. To
give cognizance to the separate corporate
entities in such a situation would * • •
partially frustrate congressional purpose
in enacting the statute.” Likewise, the
Board recently determined that concur­
rent service by an individual as a director
of a wholly owned credit card subsidiary
of a national bank and as director of
another member bank in a contiguous
municipality was prohibited by section 8
of the Clayton Act, since, in the Board’s
opinion, the credit card subsidiary was
essentially a department or division Of its

parent bank (1970 Federal Reserve Bul­
letin 344; §212.101). Furthermore, in
enforoing other provisions of section 8
relating to nonbank corporations, the
courts have gone beyond the specific lan­
guage of that section in order to effectu­
ate congressional purpose. U.S. v. Sears
Roebuck and Co., 165 F. Supp. 356
(1958).
(d)
With respect to the instant ques­
tion, the Board was of the view that
considerations similar to those just dis­
cussed are persuasive and that, there­
fore, a holding company whose principal
activity is the ownership and control of
banks, and each of its bank subsidiaries,
should be considered as constituting to­
gether a single entity for the purposes of
section 8. Accordingly, the Board con­
cluded that, if an interlocking relation­
ship between two banks is prohibited by
section 8 (none of the exceptions speci­
fied in the statute or Regulation L
being applicable), such a relationship is
also prohibited between a parent hold­
ing company of one of the banks and a
bank not a member of the holding com­
pany group. The Board concluded also
that interlocking service between parent
holding companies is prohibited by sec­
tion 8 if it is prohibited between any of
their respective bank subsidiaries.
(Interprets and applies 15 U.S.C. 19)
By order of the Board of Governors,
May 12,1970.
[ seal ]

E lizabeth L. C armichael ,
A s s is ta n t S e c r e ta r y .

[F.R. Doc. 70-6216; Piled, May 19, 1970;
8:49 a.m.]