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F ederal r es er v e Bank o f Dallas
DALLAS, TE X A S
7S222
C i r c u l a r No. 83-138
November 15, 1983
REGULATION L
MANAGEMENT OFFICIAL INTERLOCKS
(Amendments)
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of t he Federal Reserve System has announced
amendments, e f f e c t i v e November 30, 1983, to i t s Regul ati on L to r e f l e c t
changes made by Congress to the Depositor y I n s t i t u t i o n s Management I n t e r l o c k s
Act.
The I n t e r l o c k s Act p r o h i b i t s c e r t a i n i n t e r l o c k i n g r e l a t i o n s h i p s among
o f f i c i a l s of financial
i n s t i t u t i o n s , in c lu di n g d e p o s i t o r y holding companies
and t h e i r a f f i l i a t e s . These amendments, which were proposed in C i r c u l a r
No. 82-148 da t e d November 16, 1982, were designed to ease the c u r r e n t
r e g u l a t o r y burden while f u r t h e r i n g the A c t ' s goal o f f o s t e r i n g c ompe t i t i on
among d e p o s i t o r y i n s t i t u t i o n s .
Attached a r e copies of t h e Board' s pr e s s r e l e a s e s and t he m a t e r i a l as
submitted f o r p u b l i c a t i o n in the Federal R e g i s t e r .
Questions r e ga rd i ng the
material
c ont a i n ed in t h i s c i r c u l a r should be d i r e c t e d t o t he Legal
Department, Extension 6171.
Addi t i onal copies o f t h i s c i r c u l a r w i l l be f u r n i s h e d upon r e q u e s t
t h e Publi c A f f a i r s Department, Extension 6289.
to
Sincerely yours,
Wi11iam H. Wallace
F i r s t Vice P r e s i d e n t
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.
FEDERAL RESERVE press release
For immediate r e l e a s e
August 31, 1983
The Federal Reserve Board today announced a doption of amendments t o
i t s Re g u l at i o n L - - I n t e r l o c k i n g Bank R e l a t i o n s h i p s - - which implements t h e
D e p o s i t o r y I n s t i t u t i o n Management I n t e r l o c k s Act, t o r e f l e c t changes in t h e
Act adopted by Congress.
The Board a ct e d a f t e r c o n s i d e r a t i o n of comment on p r o p o s a l s p u b li s h e d
l a t e i n 1982.
The o t h e r Federal f i n a n c i a l i n s t i t u t i o n s r e g u l a t o r s a re
p r e p a r i n g s i m i l a r changes in t h e i r r e g u l a t i o n s .
The I n t e r l o c k s Act p r o h i b i t s c e r t a i n i n t e r l o c k i n g r e l a t i o n s h i p s
among o f f i c i a l s of f i n a n c i a l i n s t i t u t i o n s , i n c l u d i n g d e p o s i t o r y holding
companies and t h e i r a f f i l i a t e s .
The amendments adopted by t h e Board, s u b s t a n t i a l l y as proposed f o r
comment, r e v i s e Regu l at i on L t o :
(1)
Si mp l i f y pr ocedures f o r o b t a i n i n g e x c e p t i o n s t o t h e Act and
e x t e n s i o n s of time t o permit compliance with t h e Act, by r e q u i r i n g only one
a g e n c y ' s a pp r ov a l ;
(2)
Ease t h e burden of compliance by r e d e f i n i n g terms t o avoid
c o v e r i n g hol di n g companies l o c a t e d i n t h e same ge ogra phi c a r e a when n e i t h e r
company has an a f f i l i a t e d d e p o s i t o r y i n s t i t u t i o n in t h e a r e a ;
(3)
Broaden t h e e x c l u s i o n from t h e p r o h i b i t i o n s of t h e Act f o r
management o f f i c i a l s whose f u n c t i o n s r e l a t e e x c l u s i v e l y t o r e t a i l merc handi si ng
and ma nu f a c t u r i n g ;
(4)
Broaden t h e c ir c u ms t an c e s under which t h e e x c e p t i o n t o t h e
p r o h i b i t i o n s of t h e Act i s a v a i l a b l e on grounds of d i s r u p t i v e management l o s s ;
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(5)
4-
C l a r i f y t h e c ir c u m s t an c e s t h a t r e q u i r e t e r m i n a t i o n —
cnanges in c i r c u m s t an c e s — of n o n - g r a n d f a t h e r e d management o f f i c i a l
due t o
interlocks,
and p r ovi d e t h a t t h e 15-month gra c e p e ri o d f o r compliance f o l l o w i n g such
changes a p p l i e s whether t h e change in c ir c u ms t an c e s i s v o l u n t a r y o r i n v o l u n t a r y .
The f i v e Federal f i n a n c i a l
i n s t i t u t i o n s r e g u l a t o r s (Cornptrol 1e r of
t h e Cu rre nc y, Federal De po s i t In s ur a nc e C o r p o r a t i o n , Federal Home Loan Bank
Board, Federal Reserve Board and t h e National C r e d i t Union A d m i n i s t r a t i o n ) a r e
p r e p a r i n g a j o i n t Federal R e g i s t e r n o t i c e of r e v i s i o n s in t h e i r r e g u l a t i o n s
implementing t h e D e p os i t or y I n s t i t u t i o n s I n t e r l o c k Act, t o be p u b l i s h e d s h o r t l y .
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FEDERAL RESERVE press release
For immediate release
October 25, 1983
The Federal Reserve Board today announced that the effective
date of amendments to its Regulation L (Interlocking Bank Relationships)
approved in August will be November 30, 1983.
Although the Board approved its amendments earlier, the effective
date could not be set until the other federal regulators of depository
institutions had approved corresponding changes in their regulations.
five federal regulators
The
(Office of the Comptroller of the Currency, Federal
Reserve System, Federal Deposit Insurance Corporation, Federal Home Loan
Bank Board and National Credit Union Administration) have now published a
joint set of amendments affecting management interlocks among depository
organizations and establishing the effective date of the amendments.
The
joint rules do not alter the amendments to Regulation L approved by the
Board in August.
The amendments implement the Depository Institutions Management
Interlocks Act, which generally, but with certain exceptions, prohibits
specified management official interlocks between depository institutions,
depository holding companies and their affiliates.
The amendments simplify
procedures for obtaining exceptions and extensions of time under the Act,
ease the burden of the Act on depository institution holding companies,
broaden exclusions for certain management officials, broaden circumstances
under which exemptions are available due to disruptive management loss,
clarify circumstances requiring termination of grandfathered interlocks and
provide rules for termination of interlocks between depository institutions
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and nondepository organizations that become diversified savings and loan
holding companies
(or their subsidiaries).
The official notice of the agencies' actions is attached.
###
Attachment
DEPARTMENT OF THE TREASURY
COMPTR OLLER OF THE CURRENCY
[12 CFR Part 26]
FEDERAL RESERVE SYSTEM
[12 CFR Part 212]
FEDERAL DEPOSIT INSURANCE CORPORATION
[12 CFR Part 348]
FEDERAL HOME LOAN BANK BOARD
[12 CFR Part 563f]
NATION AL CREDIT UNION ADMINISTRA TION
[12 CFR Part 711]
Docket No.
R-0431
Management Official Interlocks
AGENCIES:
Office of the Comptroller of the Currency, Board of
Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Federal Home Loan Bank Board, and National Credit
Union Administration.
ACTION:
Final rule.
SUMMARY:
The Office of the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Federal Home Loan Bank
Board, and the National Credit Union Administration (collec
tively referred to as the "agencies") are amending their
regulations implementing the Depository Institution Management
Interlocks Act, which generally prohibit certain management
official interlocks b e t w een depository institutions, depository
h olding companies, and their affiliates.
These amendments will
(1) simplify the procedure for obtaining exceptions to the Act's
prohibitions and extensions of time to permit compliance with
the Act, (2) ease the burden of the Act on dep ository institution
holding companies by redefining the terms "office" and "total
assets," (3) broaden the exclusion for management officials
whose functions relate exclusively to retail merchandising and
manufacturing, (4) broaden the circumstances under which the
exception of the Act for disruptive man a g e m e n t loss is available,
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(5) clarify the circumstances that require termination of
nongrandfathered management official interlocks, and (6)
provide that interlocks bet ween depository organizations and
nondepository organizations that become diversified savings
and loan holding companies, or their subsidiaries, need not be
terminated until November 10, 1988, despite the occurrence of
changes in circumstances.
These amendments will streamline
procedures for administration of the Interlocks Act, and provide
the management of depository institutions and depository o r g a n i
zations with greater flexibility.
EFFECTIVE DATE:
November 30, 1983.
FOR FURTHER INFORMATION CONTACT:
Bronwen Mason Chaiffetz
((202) 452-3564) or Melanie Fein ((202) 452-3594), Board of
Governors of the Federal Reserve System; James F. E. Gillespie, Jr.
((202) 447-1893) or Rosemarie Oda ((202) 447-1880), Office of the
Comptroller of the Currency; Pamela E. F. L eCren or Barbara I.
Gersten ((202) 389-4171), Federal Deposit Insurance Corporation;
David J. Bristol ((202) 377-6461) or Cheryl A. Martin ((202)
377-6410) Federal Home Loan Bank Board; or Steven R.
Bisker
((202) 357-1030), National Credit Union Administration.
SUPPLEMENTARY INFORMATION:
On October 26, 1982, the agencies
published proposed amendments to the regulations (47 FR 47406)
implementing The Depository Institution Management Interlocks Act
of 1978 ("Interlocks Act") which was enacted as Title II of the
Financial Institutions Regulatory and Interest Rate Control Act
of 1-978 (Pub.
L. No. 95-630, 12 USC § 3201 et s e q . )
The pro
posed amendments would implement provisions of Pub. L. No. 97-110
which was signed into law o n December 26, 1981, streamline p r o
cedures under existing regulations, and relieve certain regulatory
burdens.
The proposed changes were designed to ease the current
regulatory burden while furthering the Interlocks Act's goal of
fostering competition among depository organizations.
Summary of Comments
Eighteen comments were received in response to the
publication of the proposed amendments.
The overwhelming
major i t y of the commenters favored the adoption of the p ro
posed changes.
However, some of those commenters favored
clarifying changes.
These comments are noted, where relevant,
in the discussion of the specific provisions below.
1.
Definition of "Management Official" - Exclusion of
Certain P e r s o n s . Under the current regulations, a person
whose management functions relate exclusively to the business
of retail merchandising or manufacturing is not a management
official for purposes of the prohibition based on major assets.
Such a person is, however, considered a management official for
purposes of the community and Standard Metropolitan Statistical
Area ("SMSA") prohibitions.
It h ad come to the agencies' at t e n
tion that providing an exclusion only from the major assets
prohibition creates an inconsistent result.
A holding company
employee with management functions relating solely to m a n u f a c
turing or retailing activities may serve as a management official
of a depository organization located anywhere in the country
except in the SMSA or community where the holding company or
its depository institution affiliates are located.
Accordingly,
the agencies proposed to amend the de finition so that a person
whose management functions relate exclusively to retail m e r c h a n
dising or manufacturing is not considered a management official
for purposes of any of the general prohibitions of the regulation.
Many commenters specifically favored this proposal.
In the absence
of adverse comments, the agencies are amending the definition of
"management official," as proposed, to eliminate the inconsistency
in the present definition.
2.
Definition of " O f f i c e ."
The proposal suggested excluding
from the definition of "office" an office of a depository holding
company.
This definitional change is necessary to reflect a sub
stantive change in the prohibitions of the regulations discussed
at length b elow under the heading "General Prohibitions."
This
change is being adopted as proposed.
3.
Definition of "Total A s s e t s " — Total Assets of Certain
Holding C o m p a n i e s . The agencies proposed to amend the definition
of "total assets" to provide that the total assets of diversified
savings and loan holding companies and bank h olding companies exempt
from the Bank Holding Company Act by virtue of § 4(d) of that Act
("diversified holding companies") equal only the assets of their
depository institution affiliate.
Currently, the total assets of
a diversified holding company are defined to include the assets
of the company's depository institution affiliates for the purposes
of the SMSA prohibition and the assets of all affiliates for the
purposes of the major asset prohibition.
Thus, a management
official of a diversified holdin g company with assets exceeding
$1 billion is now prohibited from serving as a management official
of a depository organization with assets exceeding $500 million,
regardless of the size or location of the dep ository institution
affiliate that causes the diversified holding company to be in
cluded as a depository organization under the regulations.
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By adopting the amendment to the definition of total assets
sub stantially as proposed, the agencies would key the interlocks
prohibitions to the size of the diversified holding company's
depository institution affiliate rather than to the size of the
holding company system.
The agencies believe that focusing on
the depository institution affiliate is appropriate because the
primary business activities of diversified holding companies do
not normally involve competition among depository organizations
of the type that the Interlocks Act is intended to foster.
In
addition, the depository institution affiliate generally repre
sents a very small part of the assets and income of the holding
company.
Thus, it has been the experience of the agencies that,
in the case of diversified h olding companies, that the asset size
of the holding company itself is not an accurate measure of the
market in which its depository institution affiliate actually
competes.
The effect of the amended definition is illustrated by the
following example:
X is a management official of Holding Company
A and wishes to serve as a manageme nt official of Bank E.
Holding
Company A is a diversified b ank holding company with consolidated
assets, including the assets of all of its affiliates, in excess
of $1 billion.
Its only depository institution is located in
SMSA 1.
Bank B's total assets exceed $1 billion and all of its
offices are located in SMSA 2.
Under the proposed amendment
the total assets of Holding Company A woul d equal the total
assets of its depositor y institution affiliate.
Thus, X's c o n
current service would be prohibited only if the assets of A's
depository institution affiliate exceeded $500 million.
One ccmmenter requested that the definition be clarified to
indicate that nondiversified subsidiary h o l ding companies of d i v e r
sified holding companies need not include assets of their parent
companies when calculating "total assets . " This clarification
would avoid the unintended result of attributing the assets of an
"upstream" affiliate or "sister" company (i.e., another company
he l d directly by the parent) to a subsidiary nondiversified
holding company.
The agencies are inserting the word "subsidiary"
b e f o r e the wor d "affiliates" in the first clause of the second
sentence of the definition to effect this change.
The agencies are also making technical changes in the
definition of "total assets" to reflect the changes being made
in the General Prohibitions discussed below.
Under the current
regulations, the total assets of a depository holding company
include or exclude the assets of its nondepository institution
affiliates depending on whether the SM S A or major assets p r o
hibitions are to be applied.
The change in definition being
adopted would eliminate that distinction since the total assets
of a depository holding company will be irrelevant for the p u r
poses of the SMSA prohibitions.
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4.
General P r o h i b i t i o n s . The agencies are adopting, as
proposed, a revision to the General Prohibitions section of the
regulations to clarify the language of the section and, in
conjunction with the redefinition of "office," effect a sub
stantive change in its application.
The general prohibitions of
the current regulations p rovide that a management interlock may
be prohibited due to the location of a depository hold ing company
regardless of whether its depository institution affiliates are
located in the same community or SMSA as the holding company
parent.
For example, the regulations currently prohibit two
depository holding companies located in the same community from
sharing management officials even though neither has depository
institution affiliates located in that community or in the same
community anywhere in the country.
The agencies believe that
this prohibit ion is unduly harsh, and the commenters supported
this view.
As adopted the amendment will apply the community and SMSA
prohibitions of the regulation solely with reference to the
location and asset size of d epository institutions and would
eliminate from consideration the location or asset size of d e
pository holding companies.
This change will permit depository
holding companies to interlock within the same community or SMSA
unless the major assets prohibition would apply or unless the
location and sizes of the dep ository institution affiliates
would trigger application of the community or SMSA prohibitions.
5.
Exemption Relating to Diversified Savings and Loan Holding
Compani e s . On December 26, 1981, section 206 of the Interlocks A ct
was amended by adding new subsection (b), which provides that a
p erson serving as a management official of a nondepository c o r p o r a
tion and a depository organization is not prohibited from continuing
to serve with both entities as a result of the nondepository
corporation becoming a diversified savings and loan holding
company, as defined in section 408(a) of the National Housing Act
(12 USC § 1730a(a)(1)(F)).
Without this express exemption, which
expires on November 10, 1988, the transformation of a corporation
into a depository or ganization would subject the official's dual
service to the prohibitions of the Interlocks Act.
Even if such
dual service commenced prior to November 10, 1978, it would not be
grandfathered under the Interlocks Act since section 206 grants
grandfathered rights only to interlocks betwe en depository
organizations.
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The statutory amendment left open the question of whether
s ubsequent changes in circumstances could result in the termina
tion of an individual's service prior to November 10, 1988.
The
agencies proposed amending their respective regulations to address
that issue so as to provide that a person who was serving as a
m a n a geme nt official of a depository organization and a n o ndeposi
tory orga nization (or any subsidi ary thereof) could maintain any
interlocking servi ce that existed w h e n the nondepository o rgani
zation became a diversified savings and loan holding company despite
the occurrence of any subsequent changes in circumstances.
This
change would reflect the view of the agencies, which is supported
b y the legislative history, that section 206(b) of the Interlocks
Act grants rights similar to those provided to grandfathered
ma n a g e m e n t officials by section 206(a).
The commenters specifically
urged the adoption of this amendment, and it is being adopted as
proposed to satisfy the intent of Congress.
The amendment as adopted would permit a management official
w h o is serving, for example, at Bank A and nondepository cor
poration B to continue to serve both A and B after B becomes a
diversified savings and loan holding company whether or not the
acquisition of the savings and loan is direct or accomplished
through a subsidiary (operating or shell) of B . If the acqu i
sition is accomplished through B's s u b sidiary corporation, and
that subsidiary had a pre-existing management official interlock
with Bank A, the interlock betwee n the sub sidiary corporation
and Bank A may also continue.
The agencies in their earlier Federal Register notice
indicated that pending consideration of the proposal no s u p e r
visory action would be taken wit h regard to section 206(b) in t e r
locks arguably affected by changes in circumstances.
In view of
the fact that the agencies have determined that section 206(b)
interlocks should receive similar treatment to grandfathered
interlocks, i.e., not be subject to early termination due to
changes in circumstances, the agencies are adding language that
wou ld expressly permit the continuance of interlocks that were
the subject of changes in circumstances in the interim period
p r i o r to the effective date of this amendment.
6.
Agency Approval of E x c e p t i o n s . The proposal included
an amendment revising the m anner in which the agencies grant
exceptions.
Under the regulations, an exception must be
approved by b o t h the federal supervisory agency of the institu
tion in need of the exception and the supervisory agency of the
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other i n s t i t u t e o n ( s ) involved in the interlocks.
Frequently,
the primary federal supervisory agency is not the same for each
institution, and an applicant for the exception must apply to
two or more agencies.
In the interests of simplifying the
procedure under the regulations and affording prompt relief to
institutions in need of management expertise, the agencies p r o
posed that approval by only the federal supervisory agency of
the needy institution should be required for the exception to
be granted, and the requirement for approval by the other s u p e r
visory agencies involved would be eliminated.
In addition, the
proposed amendment provided that if the depository institution
seeking to qualify under one of the exceptions had no federal
supervisory agency, the federal supervisory agency of the other
institution involved in the proposed interlock would grant or
deny the requested exception.
This proposed amendment was
supported by the commenters and is being adopted as proposed.
7.
Extension for Disruptive Management L o s s . Currently,
the regulations provide that the agencies may extend for a
period of up to 30 months the compliance period for depository
organizations losing 50 percent or more of their directors or
total management officials as a result of changes in circumstances
requiring the termination of interlocks.
Based on the agencies'
experience with these provisions, the agencies solicited comments
on the following proposed changes:
(a) The current provision becomes operative when a depository
institution faces the loss of 50 percent of either its directors
or total management officials.
Recognizing that the loss of a
smaller percentage of management officials may also cause signifi
cant disruption to a depository organization, the agencies propose
to reduce to 30 percent the percentage necessary to qualify for
the extension.
(b) Under current regulations, the 30-month extension
becomes available only when the depository organization facing
disruptive management loss experiences a change in circumstances.
The proposal noted that it had come to the agencies' attention
that a depository organization may experience a disruptive loss
of management officials due to changes in circumstances involving
other depository organizations but not the affected organization
itself, or due to a series of changes in circumstances involving
the organization and other depository organizations.
Recognizing
that these situations also m ay cause disruptive management loss,
the agencies proposed to make the 30-month extension available
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whe n any change in c i r c u mstan ces or c o m b i n a t i o n of changes 'in
circum stances r e s ults in the potential loss of 30 p e r c e n t or
more of an o r g a n i z a t i o n ' s directors or total man a g e m e n t officials.
U n d e r the amendments, wh i c h are being adopt ed as proposed, changes
in cir cumstances that occur w i t h i n a 1 5-month p e r i o d will be
viewed in the ag gr e g a t e in order to dete rmine w h e t h e r the r e q u i
site p e r c e n t a g e exi-sts.
The 30-month p e r i o d wou ld b e measured
from the date of the first change in circums tances that occurred
w ithin the 15-month period.
T h e following example illustrates h o w the new prov i s i o n w o u l d
operate:
Bank A, located in SMSA 1, has ten directors.
One of
Bank A's directors serves as a d i r e c t o r of Bank B in SMSA 2, one
serves as director of Bank C in SMSA 3, and one serves as d irector
of Bank D in SMS A 4.
In M o n t h 1, Bank B merges w i t h a bank in
S MSA 1.
In M o n t h 7, Bank A merges with a b a n k located in SMS A 4.
In M o n t h 13, Bank C merges w i t h a bank in SMS A 1.
As a result
of these mergers, Bank A's interlocks with each of the other
three banks become prohibited.
Bank A's m a n a g e m e n t officials
m a y apply for an extensi on to t e r minate the p r o h ibit ed interlocks,
which wo u l d end 30 months from the first change in circumstance.
(c)
U n d e r the current regulations, an o r g a n i z a t i o n qua l i f y i n g
for the 30-month exte nsion m u s t expe rience a change in circumstances
that "requires the te r m i n a t i o n of service" of its directors or
m a n a g e m e n t officials.
Whe n some of the directors w h o s e interlocks
b e c o m e p r o h ibited in fact intend to retain their positions with
the d e p ository o r g a n i z a t i o n experiencing the change in c i r c u m
stances, the exte n s i o n w o u l d not appear to be nec e s s a r y to avoid
u nduly dis r u p t i n g t he affe c t e d organization.
For this reason,
the agencies prop o s e d to limit the a v a i l a b i l i t y of the extension
b y requi ring applicants to de m o n s t r a t e the likelihood of disru ptive
m a n a g e m e n t loss.
The agencies do not b e l i e v e this requirement
w o u l d impose an undue regu latory burden; its p u r pose w o u l d be
simply to ensure that the 30-month ex te n s i o n is granted only to
o r g a n iza tions truly in need of relief.
For purposes of d e m o n
str ating the likelihood of disru ptive m a n a gement loss, the
agencies proposed to est a b l i s h a rebuttable p r e s u m p t i o n that a
director who is a full-time employee of the aff ected org ani z a t i o n
n o r m a l l y would not term i n a t e interlocking service by resigning
from that organization.
The agencies believe that such a p r e
sumption is reasonable and w o u l d ease the regulatory b u r d e n in
evaluating requests under this provision.
On e commenter suggested a change in this pro posed amendment.
It was suggeste d that instead of using a p e r centage standard, the
agenci es process extensions for disruptive m a n a g e m e n t loss on a
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case-by-case basis.
The agencies believe that a 30-percent
standard is a useful guideline which facilitates the delegation
to staff of the authority to grant extensions thereby streamlining
procedures.
In addition, it is noted that the agencies can act
pursuant to the exception for conditions endangering safety or
soundness to alleviate problems caused whe n management loss of
less than 30 percent threatens the viability of a depository
institution or organization.
Accordingly, as noted above, the
agencies are adopting this provision as proposed.
8.
Changes in Circumstances — N ongrandfathered I n t e r l o c k s .
The Interlocks Act authorizes the agencies to grant a period of
time, not in excess of 15 months, for compliance with the
Interlocks Act ’following changes in circumstances that cause
interlocks to become prohibited.
The current regulations provide
that a management official with a nongrandfathered interlock that
becomes prohibited as a result of a voluntary change in circum
stances may continue to serve until the next regularly scheduled
annual meeting of the institutions involved following a change in
circumstances, unless the agencies impose a shorter time period.
The management official may request an extension of the grace
period not in excess of 15 months from the date of the change in
circumstances.
However, if the management official's nongrand
fathered service becomes prohibited due to an involuntary change
in circumstances, such as natural growth or a change in community
or SMSA boundaries, the maximum 15-month grace period applies.
To simplify the grace period provision, the agencies are
adopting, as proposed, an amendment which provides a m a x i m u m
15-month grace period for all changes in circumstances, whether
voluntary or involuntary.
This change will eliminate the n e c e s
sity for institutions to apply for extensions of time.
Since
this change eliminates the need to distinguish between voluntary
and involuntary interlocks, that distinction is being deleted
from the change in circumstances provisions.
Since adopting the regulations, it has been the agencies'
experience that other changes in circumstances, such as the
termination of an affiliate relationship between two or more
depository organizations, may cause nongrandfathered interlocks
to become prohibited.
The list of changes in circumstances
specified in the regulations was intended to reflect the most
commonly occurring changes and, as indicated when the r e g u l a
tions were originally adopted, was not intended to be exhaustive.
To clarify their intent in this regard, the agencies proposed to
amend the regulations to indicate that nongrandfathered inter
locks that become prohibited due to changes in circumstances
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other than those enumerated in the regulation also will be
eligible for a grace period.
The amendment also will specifi
cally include d isaffiliation as a change in circumstances.
9.
Effect on Clayton A c t . The Board of Governors of the
Federal Reserve System is adopting its proposal to make a t e c h
nical change in its regulation by eliminating section 212.7
pertaining to the effect of the Interlocks Act on the Clayton
Act.
This section states that the Board of Governors regards
the provisions of the first three paragraphs of section 8 of
the Clayton Act to have been supplanted by the Interlocks Act.
The other agencies' regulations do not include this provision
since only the Board of Governors had jurisdiction over m a n a g e
ment interlocks under the Clayton Act prior to enactment of the
Interlocks Act.
The substance of the section will be incorpo
rated into the authority section of the regulation.
This change
will make the agencies' regulations more uniform in appearance.
In addition to the substantive changes described above, minor
editorial changes were made in these final rules to improve clarity
and readability.
Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility
Act (Pub. L. No.
96-354, 5 U.S.C. § 601 et s e q . ), the Board of
Governors of the Federal Reserve System, the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, the Federal
Home Loan Bank Board, and the National Credit Union Administration
certify that the amendments will not have a significant economic
impact on a substantial number of small entities.
The amendments
will ease the application of the existing regulations and do
not have any particular effect on small entities.
The effect of
the amendments is expected to be beneficial rather than adverse,
and small entities are generally expected to share the benefits
of the amendments equally with larger institutions.
Regulatory Impact A n a l y s i s . Pursuant to Section 3(g)(1) of
Executive Order 12291 of February 17, 1981, it has been determined
that the amendments do not constitute a major rule within the
meaning of section 1(b) of the Executive Order.
The amendments
ease restrictions imposed by regulations implementing the D eposi
tory Institution Management Interlocks Act, 12 U.S.C.
§ 3201 et
s e q ., in instances where the easing of such restrictions has no
anticompetitive effect.
The amendments have no adverse effect
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on the operations of the depository institutions subject to them.
As such, the amendments will not have an annual effect on the
economy of $100 million or more, will not affect costs or prices
for consumers, individual industries, government agencies, or
geographic regions, and will not have adverse effects on competi
tion, employment, investment, productivity, or on the ability of
United States based enterprises to compete with foreign based
enterprises in domestic or export markets.
Federal Register Index Terms Used: Antitrust; Banks, banking;
Credit unions; Savings and loan associations; Federal Deposit
Insurance Corporation; Federal Reserve System; Comptroller of the
Currency; Federal Home Loan Bank Board; National Credit Union
Administration; Holding companies; Management official interlocks.
Accordingly, pursuant to their respective authority under
section 209 of the Depository Institution Management Interlocks
Act (12 U.S.C. § 3207), the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Federal Home Loan Bank Board,
and the National Credit Union Administration hereby amend Title
12 of the Code of Federal Regulations, Parts 26, 212, 348, 563f,
and 711, respectively, as follows:
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FEDERAL RESERVE SYSTEM
[12 C.F.R.
PART 212]
MANAGEMENT OFFICIAL INTERLOCKS
FINAL RULE
12 C.F.R.
1.
Part 212 is amended as follows:
The authority citation for Part 212 reads as follows:
Authority:
2.
12 U.S.C.
Section 212.1(h),
§ 3201 et_ s e q .
(i) and
(1) are revised as follows:
§ 212.2 D e f i n i t i o n s .
*
*
*
*
*
(h)(1) "Management official" means (i) an employee or
officer with management functions (including a branch manager);
(ii) a director (including an advisory director or honorary
director); (iii) a trustee of a business organization under the
control of trustees (e . g ., a mutual savings bank); or (iv) any
person who has a representative or nominee serving in any such
capacity.
(2) "Management official" does not include (i) a
person whose management functions relate exclusively to the
business of retail merchandising or manufacturing;
(ii) a
person whose management functions relate p rin cipally to the
business outside the United States of a foreign commercial
bank;
or
(iii)
persons
described
in the provisos of
section 202(4) of the Interlocks Act (12 U.S.C. § 3201(4)).
(i)
"Office" means a principal or branch office,
located in the United States, of a depository institution.
"Office" does not include a representative office of a foreign
commercial bank, an electronic terminal, a loan production
office, or any office of a depository holding company.
*
*
*
*
*
(.1)
"Total assets" means assets measured on a
consolidated basis as of the close of the organization's last
fiscal year.
The "total assets" of a deposi tory holding
company include the total assets of all of its subsidiary
affiliates, except that "total assets" of a diversified savings
and loan holding company, as defined in section 408(a)(1)(F) of
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20-
the National Housing Act (12 U.S.C. § 1 7 3 0 a ( a )(F )), or of a
bank holding company that is exempt from the prohibitions of
section 4 of the Bank Holding Company Act of 1956 pursuant to
an order issued under section 4(d) of that Act (12 U.S.C.
§ 1843(d)), means only the total assets of its depository
institution affiliate.
"Total assets" of a United States
branch or agency of a foreign commercial bank means the total
assets of such branch or agency itself exclusive of the assets
of the other offices of the foreign commercial bank.
3.
Section 212.3(a)
and
paragraph (b)
and
subparagraphs (b) (1) and (3) are revised to read as follows:
§ 212.3 General P r o h i b i t i o n s .
(a) C o m m u n i t y . A management official of a depository
organization may not serve at the same time as a management
official of another depository organization not affiliated with
it if:
(1)
both are depository institutions and each has
an office in the same community;
(2)
offices of depository institution affiliates
of both are located in the same community; or
(3)
one is a depository institution that has an
office in the same community as a depository
institution affiliate of the other.
(b)
Standard Metropolitan Statistical Area ("SMSA").
A management official of a depository organization may not
serve at the same time as a management official of another
depository organization not affiliated with it if:
(1)
both are depository institutions, each has an
office
in the
same
SMSA,
and
either
institution has total assets of $20 million
or more;
*
(3)
*
*
*
★
one is a depository institution that has an
office in the same SMSA as a depository
affiliate of the other and either the
depository institution or the depository
institution affiliate has total assets of $20
million or more.
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4.
Section 212.4 is amended
subparagraphs (b)(1),
(b)(2),
(b)(3),
paragraph (c) to read as follows:
§ 212.4
by revising paragraph
and
(b)(5),
and
(b),
Permitted interlocking r e l a t i o n s h i p s .
(b)
Interlocking relationships permitted by
order.
A management official or a prospective management
official of a state member bank, bank ho lding company, or an
affiliate of either, may enter into an otherwise prohibited
interlocking relationship with a depository organization that
falls with-in one .or the classifications enumerated in this
paragraph (b) if the Federal supervisory agency (as specified
in section 207 of the Interlocks Act) of the organization that
falls within one of the classifications determines that the
relationship meets the requirements
set
forth
in this
paragraph.
If the de pository organization that falls within
one of the classifications is not subject to the interlocks
regulations of any of the Federal supervisory agencies, then
the Board shall determine whether the relationship meets the
requirements of this paragraph.
(1)
Organization in low income area; minority or
women's o r g a n i z a t i o n . A person may serve at the same time as a
management official of two or more
d e p o sitory organizations
(or affiliates thereof) if one of the depository organizations
is (i) located, or to be located, in a low income or other
economically depressed area, or (ii) controlled or managed by
persons who are members of minority groups or by women, subject
to the following conditions:
(A) the relationship is necessary
to provide
management
or
operating
expertise
to
the
organization specified in
(i) or
(ii)
above;
(B) no
interlocking relationship permitted by this subparagraph shall
continue
for more than five years; and (C) other
conditions in
addition
to, or in lieu of, the foregoing may be imposed by the
appropriate Federal supervisory agency in any specific case.
(2)
Newly-chartered o r g a n i z a t i o n .
A person may
serve at the- same time as a management official of two or more
depository organizations if one of the d e p ository organizations
(or an affiliate thereof) is a newly-chartered organization,
subject to the following conditions:
(i) the relationship is
necessary to provide management or operating expertise to the
newly-chartered organization; (ii) no interlocking relationship
permitted by this subparagraph shall continue for more than two
years
after
the
newly-chartered
organization
commences
business; and (iii) other conditions in addition to, or in lieu
of, the foregoing may be imposed by the appropriate Federal
supervisory agency in any specific case.
agency
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(3‘)
Conditions endangering safety or s o u n d n e s s .
A perso n may serve at the same time as a management official of
two or more depository organizations (or affiliates thereof) if
one
of
the
depository
organizations
faces
conditions
endangering the organization's safety or soundness, subject to
the following conditions:
(i) the relationship is necessary to
provide management or operating expertise to such organization
facing conditions endangering safety or soundness;
and (ii)
other conditions in addition to, or in lieu of, the foregoing
may be imposed by the appropriate Federal supervisory agency in
any specific case.
*
*
*
*
*
(5)
Loss of management officials due to changes
inc i r c u m s t a n c e s .
If a depository organization is likely to
lose 30 percent or more of its directors or of its total
management officials due to a change in circumstances described
in section 212.6 of this Part,
the affected management
officials may continue to serve in excess of the time periods
specified in section 212.6, provided that:
(i) the depository
organization's prospective loss of management officials or
directors will be disruptive to the internal management of the
depository organization; (ii) the depository organization
demonstrates that, absent a grant of relief in accordance with
this subparagraph, 30 percent or more of either its directors
or management officials are likely to sever their interlocking
relationships with the de pository organization; (iii) if the
prospective losses of management officials resulted from more
than one change in circumstances, such changes in circumstances
must have occurred within a fifteen-month period; and (iv) the
depository or ganization develops a plan for the orderly
termination of service by each such management official over a
period not longer than 30 months after the change in
circumstances which caused the person's service to become
prohibited (but if the loss of management officials is the
result of more than one change in circumstances, the 30-month
period is measured from the first change in circumstances).
Other conditions in addition to, or in lieu of, the foregoing
may be imposed by the appropriate Federal supervisory agency.
In evaluating requests made pursuant to this subparagraph, the
appropriate Federal supervisory agency will presume that a
director who also is a paid,
full-time employee of the
depository organization, absent unusual circumstances, will not
resign from the position of director with that depository
organization.
This pr esumption may, however, be rebutted by a
showing that such unusual circumstances exist.
(c )
Diversified savings and loan holding c o m p a n y .
Notwithstanding section 212.3, a person who serves as a
management official of a depository organization and of a
nondepository organization (or any subsidiary thereof) is not
prohibited from continuing the interlocking service when the
nondepository organization becomes a diversified savings and
loan holding
company as
that
term
is
defined in
Section 408(a)(1)(F) of the National Housing Act (12 U.S.C.
§ 1 7 3 0 a ( a )(1)(F )), and may continue to serve until November 10,
1988, despite the occurrence of any subsequent changes
in
circumstances, whether or not those changes in circumstances
occurred prior to November 30, 1983.
5.
Section 212.6
§ 212.6
is revised to read as follows:
Changes
in c i r c u m s t a n c e s .
(a) Nongrandfathered
interlocks.
If a person's
service as a management official is not grandfathered under
section 212.5
of this Part, the person's service
must
be
terminated if a change in circumstances causes such service to
become prohibited.
Such
a change may include, but is
not
limited to, an increase in asset size of an organization due to
natural growth, a change in SMSA or community boundaries or the
designation of a new SMSA,
an acquisition,
merger or
consolidation,
the
establishment
of
an office,
or
a
disaffiliation.
(b) Grace p e r i o d .
If a person's nongrandfathered
service as a management official becomes prohibited under
paragraph (a) of this section, the person may continue to serve
as a management official of all organizations involved in the
prohibited interlocking relationship until 15 months after the
date on which the change
in circumstances that caused
the
interlock to become prohibited occurred, unless the appropriate
Federal supervisory agency or agencies take affirmative action
in an individual case to establish a shorter period.
Ey order of the
Reserve System, effective
Board
of Governors of the Federal
October 21, 1983.
(signed)
William W. Wiles
William W. Wiles
Secretary of the Board
@FedFRASER