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FED ER A L RESER VE BANK OF NEW YORK r Circular No. 7 3 9 9 ~1 L May 23, 1974 J REGULATIONS L AND Y Interlocking Relationships With Banks in Low In come or Economically Depressed Areas To All Banks, and Others Concerned, in the Second Federal Reserve District: Following is the text of a statement issued May 20 by the Board of Governors of the Federal Reserve System: T he B oard of G overnors o f the Federal R eserve System today announced tw o regulatory changes designed to aid the developm ent of banks in low incom e o r other econom ically depressed areas. O ne o f the regulatory amendments makes an exception under Regulation L to permit interlocking personnel relationships, under certain conditions, in low incom e o r depressed areas. Generally, directors, officers and em ployees of mem ber banks are prohibited from holding similar positions in another bank, savings institution or trust com pany in the same, o r adjacent, communities. T he second makes an exception under R egulation Y to permit a bank holding com pany which p ro vides bank management consulting advice to an unaffiliated bank in a depressed or low incom e area to have interlocking personnel relationships with the nonaffiliated bank. In general, R egulation Y does not permit a bank holding com pany to give management consulting advice to a nonaffiliated bank if there are interlocking personnel relationships. T h e amendments are to be effective June 20, 1974. Interlocking personnel will be permitted only upon the follow in g con ditions: — A n y director, officer or employee o f a m em ber bank may be a director, officer or em ployee o f not m ore than one other bank, located or to be located in a low incom e or econom ically depressed a re a ; — T he interlocking relationship is necessary to provide management or operating exp ertise; — T here are no m ore than three interlocking relationships between any tw o banks, and interlock ing personnel do not constitute a m ajority of the board o f directors of the bank being assisted; — Interlocking relationships are not to last m ore than five yea rs; and — T h e B oard may determine other terms and conditions in specific cases in addition to, or in lieu of, the above. T he B oard also adopted an interpretation o f its amendment to Regulation L setting forth criteria that may be used in designating a “ low incom e or other econom ically depressed area.” T h e B oard said such an area is one, without regard to political or other subdivisions or boundaries, that has som e or all of the follow in g characteristics: — A rate o f unem ploym ent substantially above the national average. — A median level of fam ily incom e significantly below the national median. — T h e econom y o f the area has traditionally been dominated by one or tw o industries and these are in a state of long-term decline. — L abor and capital are leaving the area to a substantial degree. — T h e area is adversely affected by changing industrial technology. — T h e area is adversely affected by changes in national defense production or facilities. ( o v er ) In submitting the amendments for publication in the Federal Register, the Board of Governors made the following- additional statements: B y notice o f proposed rulemaking, published in the Federal Register on February 19, 1974 (2 9 F ed eral Register 6 1 3 2 ), the B oard o f G overn ors proposed to permit under certain circumstances interlocking service by a director, officer or em ployee o f a mem ber bank with another bank, banking association, savings bank or trust com pany located in a low incom e or other econom ically depressed area, by am ending section 212.3 of the B oard ’s R egulation L. F ollow in g consideration o f the com m ents received, the B oard has amended section 212.3, effective June 20, 1974, to permit certain interlocking relationships with m inor m odifications in language from that origi nally proposed. A n accom panying interpretation sets forth illustrative criteria that may be used in determining whether a certain area is a “ low incom e or other econom ically depressed area.” * Section 2 2 5 .4 (a ) (1 2 ) o f R egulation Y * * permits bank holding com panies to offer management consult ing advice to nonaffiliated banks subject to certain conditions. O ne o f those conditions is that there be no interlocking personnel relationships between the bank holding com pany or any o f its subsidiaries and the unaffiliated bank. B y action effective June 20, 1974, the B oard has amended section 212.3 o f the B oard ’ s R egulation L ( “ Interlocking Relationships U n der the Clayton A c t ” (1 2 C F R 2 1 2 ) ) so as to permit interlocking personnel relationships between a mem ber bank and a bank located in a low incom e or other econom ically depressed area. T h e public interest which the amendment to R egulation L serves w ould similarly be served by a relaxation o f the restriction found in section 2 2 5 .4 (a ) (1 2 ) ( i i ) . Thus, the purpose of the present amendment is to permit a bank holding com pany to extend management consulting advice to an unaffiliated bank with which the bank holding com pany or any o f its subsidiaries has established interlocking relationships pursuant to section 2 1 2 .3 (g ) of R egulation L. Enclosed are copies of the amendment to, and interpretation of, Regulation L and the amendment to Regulation Y , referred to in the above statements. Additional copies of the enclo sures will be furnished upon request. A lfred H a y e s , President. Board of Governors of the Federal Reserve System INTERLOCKING BANK RELATIONSHIPS UNDER THE CLAYTON ACT A M E N D M E N T T O R E G U L A T IO N L E ffective June 20, 1974, section 212.3 is amended by adding a new subparagraph ( g ) thereto, to read as fo llo w s : S E C T I O N 212.3— R E L A T I O N S H I P S P E R M IT T E D B Y B O A R D In addition to any relationships covered by the foregoing exception, not m ore than one o f the follow in g relationships is hereby permitted by the B oard o f G overnors of the Federal R e serve System in the case of any one individual. ( g ) B ank in lo w in co m e area. A n y direc tor, officer or em ployee o f a mem ber bank of the Federal R eserve System may be at the same time a director, officer or em ployee of not m ore than one other bank located, o r to be located, in a low incom e or other econ om ically depressed area, subject to the follow in g conditions : ( 1 ) such relationship is determined by the B oard to be necessary to provide man agement or operating expertise to such other ban k; ( 2 ) not m ore than three interlocking relationships between any tw o banks shall be permitted by this paragraph, excep t that per sons serving in interlocking relationships pur suant to this paragraph shall in no instance constitute a m ajority o f the board o f directors of the other bank; ( 3 ) no interlocking rela tionship permitted by this paragraph shall co n tinue for m ore than a five-year period, and ( 4 ) upon such other term s and conditions in addition to or in lieu o f the foregoing, as may be determined by the B oard in any specific case. P R IN TE D IN N E W YORK Board of Governors of the Federal Reserve System INTERLOCKING BANK RELATIONSHIPS UNDER THE CLAYTON ACT IN T E R P R E T A T IO N OF R E G U L A T IO N L §212.103 — Exemption from section 8 of the Clayton Act for bank in low in come area. ( a ) E ffective June 20, 1974, the B oard o f G overnors amended section 212.3 o f R egu la tion L to exem pt under certain circumstances from the prohibitions of section 8 of the C lay ton A ct (1 5 U .S .C . 19) interlocking relation ships between a mem ber bank and a bank in a “ low incom e or other econom ically depressed area.” (1 2 C F R 2 1 2 .3 ( g ) ) . T h is interpreta tion is intended to set forth som e o f the criteria that may be used in the designation o f such an area. ( b ) A “ low incom e or other econom ically depressed area” is any area, without regard to political or other subdivisions or boundaries, which have some or all o f the follow in g ch aracteristics: ( 1 ) the rate o f unem ploym ent is substan tially above the national rate; ( 2 ) the median level o f fam ily incom e is significantly below the national m edian; ( 3 ) the econ om y o f the area has tradi tionally been dominated by only one o r tw o industries, which are in a state of long-term d e clin e ; ( 4 ) the rate o f outm igration of labor or capital is substantial; ( 5 ) the area is adversely affected changing industrial tech n ology; by ( 6 ) the area is adversely affected changes in national defense facilities production. by or PR IN TE D IN N E W YORK Board of Governors of the Federal Reserve System BANK HOLDING COMPANIES A M E N D M E N T T O R E G U L A T IO N Y Effective June 20, 1974, section 2 2 5 .4 (a ) (1 2 ) ( i i ) is amended to read as fo llo w s: S E C T I O N 225.4— N O N B A N K I N G A C T IV IT IE S (a ) A ctiv ities clo se ly rela ted to b a n k in g or m anaging o r c o n tro llin g banks. * * * T h e follow in g activities have been determined by the B oard to be so closely related to banking or m anaging or controlling banks as to be a proper incident th ere to : * * * (1 2 ) providin g management consulting ad vice* to nonaffiliated banks Provided that, * * * ( i i) no officer, director or em ployee o f the bank holding com pany or any o f its subsidiaries serves as an officer, director or em ployee o f the client bank, except where such interlocking relationships are or w ould be permitted by section 2 1 2 .3 (g ) o f R egulation L ; . . . * In performing this activity bank holding companies are not authorized to perform tasks or operations or provide services to client banks either on a daily or continuing basis, except as shall be necessary to instruct the client bank on how to' per form such services for itself. See also the Board’s interpreta tion of bank management consulting advice (12 CFR 225.131). PR IN T E D I N N E W YO RK