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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