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FED ER AL RESERVE BANK
O F NEW YORK
[
Circular No. 8818
May 5, 1980
]
MANAGEMENT OFFICIAL INTERLOCKS
Regulatory Amendments To Implement the Depository Institution Management Interlocks Act
To A ll Member Banks and Bank Holding Companies,
and Others Concerned, in the Second Federal Reserve D istrict:
The Board of Governors of the Federal Reserve System, in conjunction with similar actions
by the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Home
Loan Bank Board, and the National Credit Union Administration, has amended its Regulation L,
“Management Official Interlocks,” to implement the provisions of the Depository Institution Man
agement Interlocks Act. The Act prohibits certain management official interlocks between depository
institutions, depository holding companies, and their affiliates. The amendment is effective May 9,
1980.
At the same time, the Board of Governors has amended its “Rules Regarding Delegation of
Authority” in order to delegate to the Federal Reserve Banks the authority to extend the grace
period for the termination of management official interlocks that become prohibited as a result of
Regulation L as amended.
The following is quoted from a statement issued by the Board on behalf of the five Federal
regulatory agencies:
The Board issued final rules—Regulation L—under the Interlocks Act in July [1979], but said it would
accept further comment on them. The revisions announced today reflect consideration of comment received.
In July the Board also proposed four amendments to the final rules. The Board today made public the
amendments in final form, after consideration of comment on them.
The Board made the following revisions of Regulation L :
Requests were received for relief from depository institutions facing loss of a large part of their directors
or other management officials through application of the provisions of the Interlocks Act. Accordingly, and in
view of the intent of the Congress to avoid undue disruptions in the operations of depository institutions, the
Board has provided in Regulation L that organizations experiencing the loss of half or more of their directors
or of other management personnel under provisions of the Act may have up to 30 months to come into compli
ance with the Act, provided th a t:
1. The depository institution submits a written proposal for orderly termination of the services of the
affected management officials, and2
2. The officials agree to sever their relationships with the institution not later than 30 months after the
change in circumstances requiring termination.
Most of the changes to the final rules were clarifications in response to comment. These include:
—Adoption of a 10-mile rule—measured by road miles—for defining “adjacent.”
—Defining the “office” of a depository holding company as its principal corporate office.
The Board took the following actions on its July proposals for amendments to Regulation L :
i.
Grandfathering of interlocks
The Board adopted without substantive change its proposal stating that those eligible for grandfathered
interlocking relationships include those whose service began before November 10, 1978 and was not then in
violation of the Clayton Antitrust Act. Such grandfathered interlocks may continue, absent a change in circum
stances, until November 10, 1988. The Board withdrew a proposal to apply certain restraints to the service of a
( over)
management official with a corporation that became a depository holding company after November 9, 1978 by.
acquiring shares of the depository institution.
2.
Representative or nominee
The July proposal would have made certain relationships of an official, including family, employment or
agency relationships, normally sufficient to establish an express or implied duty of the official to act as a repre
sentative or nominee. In the final form of this amendment these are relationships that “may” establish such
obligations, but that will not of themselves create an express or implied obligation. The agencies added a pro
vision specifying that whether such obligations exist will be decided on a case-by-case basis after the affected
person or persons shall be given an opportunity to respond.
j.
“Persons”
In July the Board offered for comment three alternatives as possible definitions of “persons.” The amend
ment as adopted after consideration of comment received includes as “persons” corporations and other businesses
as well as natural persons. But it excludes corporations and other businesses from the definition of representative
or nominee. Thus, while corporations are considered persons for the purposes of the provisions of the Interlocks
Act they will not, under Regulation L, be deemed to have representatives or nominees on boards.
4.
Change in circumstances affecting grandfathered interlocks
The provisions of this proposal were retained generally. Increased management responsibility has been
eliminated as a change in circumstances that would defeat grandfathered rights. An extended grace period has
been provided for compliance by institutions experiencing changes in circumstance prior to the effective date of the
amendments. An extended grace period has also been provided for compliance by institutions that must, as a
result of a change in circumstances, terminate non-grandfathered interlocks.
Enclosed is a copy of the amendment to the Board’s “Rules Regarding Delegation of Au
thority.” The amendment sheet also contains a technical correction of Section 265.2(a) (2) of the
Rules.
Also enclosed—for member banks, bank holding companies, and certain foreign institutions
affected by the regulation—is a copy of the text of the Regulation L amendments, which has been
reprinted from the Federal Register of April 9, 1980. The amendments will be incorporated in a
revised pamphlet containing Regulation L ; the pamphlet is expected to be available later this month
and will be sent to you as soon as possible.
Questions on these matters may be directed to our Regulations Division (Tel. No. 212-791-5914).
A
nthony
M.
So l o m o n ,
President.
Board of Governors of the Federal Reserve System
RULES REGARDING DELEGATION OF AUTHORITY
AM ENDM ENT AND CORRECTION
Amendment
(Effective May p, ip8o)
A G E N C Y : Board of Governors of the Federal
Reserve System.
A C T IO N : Final rule.
S U M M A R Y : The Board is amending its Rules
Regarding Delegation of Authority in order to
delegate to the Reserve Banks the authority to
grant an additional grace period for the termina
tion of management official interlocks that be
come prohibited as a result of certain changes in
circumstances as provided in the Board’s regula
tions (12 C.F.R. Part 212) issued under the
Depository Institution Management Interlocks
Act (12U.S.C. §3201 et seq.). This action is in
tended to expedite reviews of requests for an ex
tended grace period provided in the regulations.
E F F E C T IV E D A T E : May 9, 1980.
FO R F U R T H E R IN F O R M A T IO N CON
TA C T: Bronwen Mason, Senior Attorney
(202-452-3564), or Melanie Fein, Attorney
(202-452-3594), Legal Division, Board of Gov
ernors of the Federal Reserve System, Wash
ington, D.C. 20551.
SUPPLEMENTARY INFORMATION:
The Depository Institution Management Inter
locks Act ( “Interlocks Act” ) authorizes the
Board of Governors to provide up to 15 months
for the termination of management interlocks
between depository organizations that become
prohibited as a result of certain changes in cir
cumstances. The Board has issued regulations
(12 C.F.R. 212.6) under the Interlocks Act
that require the termination of management
interlocks in certain instances after mergers,
acquisitions, consolidations, or the establishment
of branch offices. In most cases, section 212.6
requires that the affected interlock be terminated
no later than the next regularly scheduled annual
meeting of shareholders of the organizations
involved, unless the appropriate supervisory
agency upon request grants an additional grace
period of up to 15 months from the date of the
change in circumstances. The additional grace
period may be made available to avoid undue
disruption of the annual shareholders’ meetings
of the depository organizations involved, par
ticularly those that are well along in their
preparations for annual meetings and which
may have already sent out materials to share
holders nominating directors whose service
would become prohibited as a result of the issu
ance of the regulations. In order to expedite
review of requests for the extended grace period,
the Board is delegating to the Federal Reserve
Banks the authority to grant such requests,
where appropriate, received from depository
organizations in their districts.
The provisions of section 553 of Title 5,
United States Code, relating to notice, public
participation, and deferred effective date have
not been followed in connection with the adop
tion of these amendments because the changes
involved are procedural in nature and do not
constitute a substantive rule subject to the re
quirements of that section.
In order to implement this action, 12 C.F.R.
265.2(f) is amended by adding paragraph (f)
(48) to read as follows:
SECTION 265.2—SPE C IFIC FU N CTIO N S
DELEGATED TO BOARD EM PLO Y EES
AND TO FED ERA L R ESERV E BANKS.
*
*
(f)
Each Federal Reserve Bank is author
ized as to a member bank or other indicated
organization for which the Reserve Bank is
responsible for receiving applications or reg
istration statements; as to its officers under
subparagraph (23) of this paragraph; and
as to its own facilities under subparagraph
(26) of this paragraph:
*
*
*
(48) Under the provisions of § 212.6 of this
chapter (Regulation L relating to changes in
For these Rules to be complete, retain:
1) Pamphlet amended “effective September 21, 1979.”
2) Correction notice, dated December 13, 1979, indicating that the
effective date of the pamphlet is October 24, 1979.
3) Amendment effective November 28, 1979.
4) This slip sheet.
[Enc. Cir. No. 8818]
*
PRINTED IN NEW YORK
circumstances requiring term ination of inter
locking management official relationships), to
grant time for compliance with § 212.6 of up
to an aggregate of 15 months from the date
on which the change in circumstances as spe
cified in that section occurs, if the granting
of the additional time appears to be appro
priate to avoid undue disruption of the annual
shareholders’ meetings of the depository or
ganizations involved in the management
interlocks.
Correction
On page 5 of the Rules pamphlet amended
effective September 21, 1979,” subparagraph
(2) of Section 265.2(a) is corrected to read as
follows:2
(2) Under the provisions of §§ 18(c) and
18(c) (4) of the Federal Deposit Insurance Act
(12 U.S.C. 1828(c) and 1 8 2 8 (c)(4 )), §§3(a)
and 4 (c )(8 ) of the Bank Holding Company
Act (12 U.S.C. 1842(a) and 1843(c)(8)) and
§§ 225.3(b) and (c), and §§ 225.4(a) and (b)
of Regulation Y (12 CFR 225.3(b) and (c),
and 225.4(a) and (b )), to furnish reports on
competitive factors involved in a bank merger
to the Comptroller of the Currency and the
Federal Deposit Insurance Corporation and to
approve applications the Reserve Bank could
approve under subparagraph (22) of paragraph
(f) of this section, except for the fact that con
dition (ii) of that subparagraph has not been
met because a director or senior officer of any
holding company, bank, or company to be ac
quired or retained, involved in the transaction,
is a director of a Federal Reserve Bank or
branch. (correction printed in bold face)
. HP
24384
I
Federal Register / Vol. 45, No. 70 / Wednesday, April 9,1980 / Rules and Regulations
FEDERAL RESERVE SYSTEM
12CFR Part 212
DEPARTM ENT OF TH E TREASURY
Comptroller of the Currency
12 CFR Part 26
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 348
FEDERAL HOME LOAN BANK BOARD
12 CFR Part 563f
NATIONAL CRED IT UNION
ADMINISTRATION
12 CFR Part 711
[Docket No. R-0198]
Management Official Interlocks; Final
Amendments to Existing Regulations
AGENCIES: B oard o f G o v ern o rs o f the
F ed era l R e se r v e S y ste m , C om p troller o f
th e C urrency, F ed era l D e p o sit In su ran ce
C orp oration , F e d era l H o m e L oan B ank
B oard, an d N a tio n a l C redit U n io n
A d m in istra tio n .
ACTION: F in al a m e n d m e n ts to e x is tin g
reg u la tio n s.
SUMMARY: O n July 1 9 ,1 9 7 9 , th e a g e n c ie s
p u b lish e d r eg u la tio n s, a s w e ll a s
p r o p o se d a m e n d m e n ts to th o se
r eg u la tio n s, u n d er th e D e p o sito r y
In stitu tio n M a n a g e m e n t In terlo ck s A c t
(T itle II o f th e F in a n c ia l In stitu tio n s
R egu latory a n d In terest R ate C ontrol
A c t o f 1978) (the “In terlo ck s A c t”). T he
In terlo ck s A c t p ro h ib its c erta in
m a n a g e m e n t o ffic ia l in te r lo c k s b e tw e e n
d e p o sito r y in stitu tio n s, d e p o sito r y
h o ld in g c o m p a n ie s, a n d their a ffilia te s.
T h e fin a l a m e n d e d re g u la tio n s
p u b lish e d in fu ll b e lo w in c lu d e c erta in
cla rify in g a n d te c h n ic a l c h a n g e s in th e
re g u la tio n s p u b lish e d in July, a n d a d d a
d e fin itio n o f th e term “r e p r e se n ta tiv e or
n o m in e e ,” a s w e ll a s p r o v is io n s
co n c e r n in g “gra n d fa th er” rights a n d
“c h a n g e s in c irc u m sta n ces." In a d d itio n ,
th e fin a l a m e n d m e n ts a d d a p r o v isio n
th at e x te n d s th e c o m p lia n c e p erio d for
d e p o sito r y o rg a n iz a tio n s e x p e r ie n c in g a
d isru p tiv e lo s s o f m a n a g e m e n t a s a
resu lt o f a c h a n g e in c ir c u m sta n c e s.
T h e s e a m e n d m e n ts are c o n sid e r e d to b e
sig n ific a n t w ith in th e m ea n in g o f
E x e c u tiv e O rder 12044 ("Im proving
G o v ern m en t R e g u la tio n s”), i.e., th e y w ill
b e o f su b s ta n tia l in te r e st to th e fin a n c ia l
in s titu tio n s co m m u n ity a n d th e p u b lic
because they include provisions that are
determinative of whether or not certain
interlocking relationships are prohibited.
EFFECTIVE DATE: May 9, 1980.
FOR FURTHER INFORMATION CONTACT:
Bronwen Mason (202) 452-3564 or
Melanie Fein (202) 452-3594, Board of
Governors of the Federal Reserve
System: Gwenn Hibbs (202) 447-1880 or
Howard Finkelstein (202) 447-1880,
Office of the Comptroller of the
Currency: Pamela LeCren (202) 389-4433,
Federal Deposit Insurance Corporation:
Kathleen Topelius (202) 377-6444 or
Kenneth Hall (202) 377-6443, Federal
Home Loan Bank Board; Ross Kendall
(202) 357-1030, National Credit Union
Administration.
SUPPLEMENTARY INFORMATION: The
Depository Institution Management
Interlocks Act w as enacted on
November 10,1978, as Title II of the
Financial Institutions Regulatory and
Interest Rate Control Act of 1978 (12
U.S.C. 3201 et seq.). On July 19,1979, the
agencies published regulations
implementing the Interlocks Act (44 FR
42152), effective immediately upon
publication. At the same time, the
agencies issued proposed amendments
to complete the regulations (44 FR 42212)
by clarifying certain issues not
addressed in the regulations. In
addition, comment was sought on
whether or not the agencies should
define “person” so as to exclude
corporations-or other business entities
from being considered “management
officials” for the purposed of the
Interlocks Act. Public comment was
invited for sixty days, until September
17,1979, regarding both the regulations
and the proposed amendments.
The agencies received approximately
15 comments concerning the regulations
and approximately 65 comments
concerning the proposed amendments.
Upon careful review of the comments,
as well as experience gained in
administering the Interlocks Act
regulations, the agencies have decided
to make certain technical and clarifying
changes in the July regulations and to
adopt the proposed amendments with
certain modifications.
T h e fin a l a m e n d e d re g u la tio n s are
d e sig n e d to further th e p u rp o se o f th e
In terlo ck s A c t ter fo s te r c o m p e titio n
a m on g d e p o sito r y in stitu tio n s. B e c a u se
th e In terlo ck s A c t req u ires th at
e x c e p tio n s from th e A c t’s p r o h ib itio n s
b e c r e a te d b y r eg u la tio n s, it is n e c e s s a r y
for th e a g e n c ie s to is s u e th e s e form al
reg u la tio n s. H o w e v e r , c o n s is te n t w ith
E x e c u tiv e O rder 12044 ("Im proving
G o v ern m en t R e g u la tio n s,” 43 FR 12661),
th e a g e n c ie s h a v e d e te r m in e d th at n o
in c r e a s e d c o s ts from r e c o r d k e e p in g or
rep ortin g w ill r e su lt from c o m p lia n c e
w ith th e r eg u la tio n s, a n d a c c o r d in g ly , n o
c o s t-b e n e fit a n a ly s is o f th e re g u la tio n s
is n e c e s s a r y .
In a c c o r d a n c e w ith s e c tio n 553(d) o f
th e A d m in istr a tiv e P roced u re A c t (5
U .S.C . 500, et seq.), th e fin a l
a m e n d m e n ts to th e r e g u la tio n s
im p lem en tin g the In terlo ck s A c t w ill b e
e ffe c tiv e M a y 9 ,1 9 8 0 . A n e x p la n a tio n o f
e a c h o f th e c h a n g e s to th e r e g u la tio n s
m a d e b y th e fin a l a m e n d m e n ts a n d a
d is c u s s io n o f th e c o m m e n ts r e c e iv e d are
se t forth b e lo w .
1. Definition o f “
adjacent. ” T h e
r e g u la tio n s is s u e d in July d e fin e d
“a d ja c e n t” to m e a n c itie s, to w n s, or
v illa g e s th at are w ith in te n m ile s o f o n e
a n o th e r at th eir c lo s e s t p o in ts. H o w e v e r ,
th e a g e n c ie s s p e c ific a lly s o lic ite d
co m m en t on w h e th e r a d istin c tio n
sh o u ld b e m a d e b e tw e e n a d ja c e n t a r e a s
in rural a n d urb an lo c a tio n s . For
e x a m p le , c o n sid e r a tio n w a s g iv e n to
treatin g a s a d ja c e n t, c itie s, to w n s , or
v illa g e s w ith in ten m ile s o f e a c h oth er
an d lo c a te d in an S M S A , a n d to treatin g
a s a d ja c e n t, c itie s, to w n s, or v illa g e s
lo c a te d w ith in 25 m ile s o f e a c h o th er but
n o t w ith in an S M S A . T h e a g e n c ie s
r e c e iv e d fe w c o m m e n ts on th is p r o p o sa l
a n d th erefo re b e lie v e th at a d is tin c tio n
b e tw e e n com m u tin g a n d tra v el p a tte r n s
in rural a n d u rb an a r e a s is n o t
w a rra n ted . T h u s, th e d e fin itio n o f
a d ja c e n t h a s n o t b e e n s u b s ta n tiv e ly
a m e n d e d a t th is tim e.
T h e fin a l a m e n d m e n ts do, h o w e v e r ,
c la r ify th e d e fin itio n o f a d ja c e n t b y
s p e c ify in g th a t th e d is ta n c e b e tw e e n
c itie s , to w n s, or v illa g e s is m e a s u r e d b y
ro a d m ile s. T h u s, c itie s lo c a te d on
o p p o site b a n k s o f a river w ill n o t b e
c o n sid e r e d a d ja c e n t if th e d is ta n c e
b e tw e e n th em v ia th e n e a r e s t b rid g e is
m ore th a n 10 m ile s.
2. Definition o f “
affiliate. ’’ T h e
d e fin itio n o f “a ffilia te ” h a s b e e n
c la r ifie d in tw o r e sp e c ts. L a n gu age h a s
b e e n a d d e d to th e r e g u la tio n s to
e m p h a s iz e that, for th e p u r p o se s o f
s e c tio n 202(3)(B) o f th e In te r lo c k s A c t,
th e sh a r e s o w n e d b y a g iv e n in d iv id u a l
in c lu d e a n y sh a r e s th at are o w n e d b y
m e m b e r s o f th e in d iv id u a l’s im m e d ia te
fa m ily . In a d d itio n , th e d e fin itio n o f
“im m e d ia te fa m ily ” h a s b e e n a m e n d e d
to in c lu d e s p e c ific a lly th e s p o u s e o f an
in d iv id u a l.
3. Definition o f “depository
institution ”—application o f Interlocks
A ct to foreign banks. The regulations
are intended to subject only
Federal Register / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
m a n a g e m e n t o ffic ia ls se r v in g U n ite d
S ta te s o ffic e s o f fo reig n b a n k s to th e
p r o v is io n s o f th e In terlo ck s A c t a n d n o t
to p roh ib it cer ta in in terlo ck in g
r e la tio n sh ip s o u ts id e th e U n ite d S ta te s
b e tw e e n tw o foreign b a n k s h a v in g
su b s id ia r y b a n k s, b r a n c h e s or a g e n c ie s
lo c a te d in th e U n ite d S ta te s. T h e
r e g u la tio n s is s u e d in July m a y n o t h a v e
a c c u r a te ly r e fle c te d th e a g e n c ie s ’
d e te r m in a tio n in th is re sp e c t.
A c c o r d in g ly , th e a g e n c ie s h a v e
a m e n d e d the d e fin itio n o f “d e p o sito r y
in s titu tio n ” to m a k e c le a r th at o n ly
in s titu tio n s ch a rtered in th e U n ite d
S ta te s a n d h a v in g a p r in cip a l o ffic e
lo c a te d in th e U n ite d S ta te s, a s w e ll a s
U n ite d S ta te s o ffic e s o f foreign
c o m m e r c ia l b a n k s, are d e p o sito r y
in s titu tio n s for th e p u r p o se s o f th e
In terlo ck s A ct.
4. Definition o f “
office. " T h e July
re g u la tio n s d id n o t m a k e a n y d is tin c tio n
in th e d e fin itio n o f “o ffic e ” b e tw e e n th at
o f a d e p o sito r y in stitu tio n a n d th at o f a
d e p o sito r y h o ld in g co m p a n y . T h u s, in
so m e c a s e s , an o ffic e o f a d e p o sito r y
h o ld in g c o m p a n y c o u id b e in terp reted to
in c lu d e a lo c a tio n at w h ic h the
d e p o sito r y h o ld in g c o m p a n y c o n d u c ts
its o p e r a tio n s, su c h a s a p la n t or sto ra g e
fa c ility . T h e a g e n c ie s do n o t b e lie v e th at
th e p r o v is io n s o f s e c tio n 203 o f th e
In te r lo c k s A c t w e r e in te n d e d to a p p ly to
lo c a tio n s o f a d e p o sito r y h o ld in g
c o m p a n y n o t in v o lv e d in th e c o n d u c t o f
d e p o sito r y b u s in e s s , a n d th e y d id n o t
in te n d th e r e g u la tio n s to h a v e th at
resu lt. A c c o r d in g ly , th e a g e n c ie s h a v e
a d d e d a te c h n ic a l a m e n d m e n t to cla rify
th e s c o p e o f th e d e fin itio n o f “o ffic e ”
w ith r e sp e c t to a d e p o sito r y h o ld in g
c o m p a n y . T h e reg u la tio n h a s b e e n
a m e n d e d to d e fin e th e o ffic e o f a
d e p o sito r y h o ld in g c o m p a n y (th at is n o t
a ls o a d e p o sito r y in stitu tio n ) a s its
p rin cip a l c o rp o ra te h ea d q u a rters.
5. Definition o f “
management
official"—exclusion o f certain persons.
A m a n a g e r o f a d e p o sito r y h o ld in g
c o m p a n y ’s reta il or m an u factu rin g
su b s id ia r y m igh t b e p r e c lu d e d b y
s e c tio n 204 o f th e In terlo ck s A c t from
se r v in g a s a m a n a g e m e n t o ffic ia l o f a n y
d e p o s ito r y o rg a n iz a tio n w ith a s s e ts in
e x c e s s o f $500 m illio n , if th e
c o n s o lid a te d a s s e ts o f th e d e p o sito r y
h o ld in g c o m p a n y e x c e e d $1 b illio n .
B e c a u s e th e a g e n c ie s d o n o t b e lie v e th at
C o n g r e ss in te n d e d to p roh ib it
m a n a g e m e n t s e r v ic e b y in d iv id u a ls
w h o s e fu n c tio n s r e la te e x c lu s iv e ly to
r e ta il m e r c h a n d isin g or m an u factu rin g,
th e July r e g u la tio n s e x c lu d e d su c h
p e r so n s from th e d e fin itio n o f
“m a n a g e m e n t o ffic ia l.” T h e p r e a m b le to
th e July r e g u la tio n s r e q u e ste d co m m en t
c o n c e r n in g w h e th e r o th er c a te g o r ie s o f
p e r so n s w h o s e fu n c tio n s r ela te
e x c lu s iv e ly to n o n fin a n c ia l b u s in e s s
a c tiv itie s sh o u ld a ls o b e e x c lu d e d from
th e d efin itio n . W h ile s e v e r a l
c o m m e n te r s su g g e s te d th at th e a g e n c ie s
sh o u ld b r o a d e n th e c la s s o f p e r so n s
e x c lu d e d from the d e fin itio n o f
“m a n a g e m e n t o ffic ia l,” n o s p e c ific
situ a tio n s d em o n stra tin g th e n e e d for
a d d itio n a l c a te g o r ie s w e r e cite d . In th e
a b s e n c e o f a n y e v id e n c e o f s p e c ific
situ a tio n s th at w o u ld w a rra n t further
e x c lu s io n s , th e a g e n c ie s h a v e d e c id e d to
reta in th e d e fin itio n a s o r ig in a lly
p rom u lgated . T h e a g e n c ie s h a v e m a d e a
te c h n ic a l a m e n d m e n t to th e p h ra sin g o f
th e e x c lu s io n a r y s e n te n c e to c la r ify th at
th e e x c lu s io n a p p lie s o n ly to d e p o sito r y
o r g a n iz a tio n s su b je c t to th e p r o h ib itio n s
o f s e c tio n 204 o f th e In terlo ck s A ct.
6.
Definition o f “
person. " S e c tio n
202(4) o f th e In terlo ck s A c t d e fin e s th e
term “m a n a g e m e n t o ffic ia l” to in c lu d e
“a n y p e r s o n ” w h o h a s a r e p r e se n ta tiv e
or n o m in e e se r v in g a s an e m p lo y e e or
o ffic e r w ith m a n a g e m e n t fu n c tio n s or
se r v in g a s a d irector. T h e term “a n y
p e r s o n ” c o u ld b e in terp reted to in c lu d e
co r p o r a tio n s a n d oth er b u s in e s s e s , a n d
a s a resu lt, a n o n d e p o sito r y c o rp o ra tio n
th a t h a s o n e o ffic e r se r v in g a s a d irecto r
o f o n e d e p o sito r y o rg a n iz a tio n a n d
a n o th e r o ffic e r se r v in g a s a d irecto r o f
a n o th e r d e p o sito r y o r g a n iz a tio n c o u ld
b e reg a rd ed a s a m a n a g e m e n t o ffic ia l
(through its “r e p r e s e n ta tiv e s ” or
“n o m in e e s ”) su b je c t to th e In terlo ck s
A c t p ro h ib itio n s. T h e a g e n c ie s
r e q u e ste d c o m m e n t c o n c e r n in g w h e th e r
to d e fin e th e term “p e r s o n ” for p u r p o se s
o f th e In terlo ck s A c t s o a s to e x c lu d e
co rp o ra tio n s or oth er b u s in e s s e s .
S p e c ific a lly , th e a g e n c ie s p r o p o se d th ree
a lte r n a tiv e a p p r o a c h e s reg a rd in g th is
issu e :
1. Define the term “any person” to
m ean only natural persons;
2. Define the term to mean
corporations, other businesses, and
natural persons; or
3. Define the term to mean
corporations, other businesses, and
natural persons, and in the case of
corporations or other businesses to limit
the applicability to those circumstances
in which an individual acts in a
demonstrably representative manner on
behalf of the corporate or business
principal.
T h e a g e n c ie s r e c e iv e d a p p r o x im a te ly
10 c o m m e n ts co n c e r n in g th is is s u e . A
m a jo rity o f th e c o m m e n ts fa v o r e d
a lte r n a tiv e 1, w ith a sig n ific a n t n u m b er
a ls o en d o r sin g a lte r n a tiv e 3 a s a s e c o n d
c h o ic e , w h ile o n e co m m en t fa v o r e d
a lte r n a tiv e 2. A n u m b er o f c o m m en ters
a s s e r te d th a t th e in c lu sio n o f
c o r p o r a tio n s in th e d e fin itio n o f
“p e r so n ” w o u ld b e a n tic o m p e titiv e s in c e
24385
depository organizations often compete
for a nondepository company’s business
by inviting company officials to serve on
the depository organization’s board of
directors. The commenters also asserted
that the inclusion of corporations in the
definition of “person” would deprive
many depository organizations of
individuals possessing valuable
business experience and talent.
A fte r ca refu l e v a lu a tio n o f a ll the
c o m m e n ts a n d r e v ie w o f th e le g is la tiv e
h isto r y an d r e le v a n t le g a l p r in cip les, th e
a g e n c ie s h a v e a d o p te d a m o d ifie d
v e r s io n o f a lte r n a tiv e 3. T h e re g u la tio n s
d e fin e th e term “p e r s o n ” to in c lu d e
co rp o ra tio n s, o th er b u s in e s s e s , a n d
n atu ral p e r so n s, b u t lim it the a p p lic a tio n
o f th e p r o v is io n b y e x c e p tin g
c o r p o r a tio n s an d oth er b u s in e s s e s from
th e d e fin itio n o f “r e p r e se n ta tiv e or
n o m in e e .” T h e a g e n c ie s b e lie v e th at
in c lu sio n o f co r p o r a tio n s a n d oth er
b u s in e s s e s in th e term “p e r s o n ” is
req u ired b y th e la n g u a g e o f the
In terlo ck s A ct, th e a b s e n c e o f a n y
e v id e n c e o f le g is la tiv e in te n t to n a rro w
th e term , an d b y th e sta tu to r y p u rp o se to
fo s te r c o m p e titio n in th e b a n k in g
in d u stry. In d e e d , th e a g e n c ie s are o f th e
v ie w th at situ a tio n s m a y a r ise in w h ic h
th e in d ir e c t in te r lo c k c r e a te d w h e n
r e p r e s e n ta tiv e s o f a third firm s e r v e a s
m a n a g e m e n t o ffic ia ls o f tw o or m ore
d e p o sito r y in s titu tio n s c o u ld in h ib it
c o m p e titio n a m o n g th o s e d e p o sito r y
in stitu tio n s. T h u s, an in terp reta tio n o f
th e sta tu te th at in e ffe c t d e n ie d th e
a g e n c ie s reg u la to ry au th o rity to d e a l
w ith su ch a n tic o m p e titiv e r e la tio n sh ip s
w o u ld u n n e c e s s a r ily fru strate th e
p u r p o se o f th e In terlo ck s A ct.
A c c o r d in g ly , th e a g e n c ie s h a v e a d o p te d
th e s e c o n d p r o p o se d d e fin itio n o f the
term “p e r so n ” a s a m a tter o f sta tu to ry
co n str u c tio n .
The agencies nevertheless recognize
that not all situations involving indirect
interlocks among depository institutions
would inhibit competition among
depository organizations. The agencies
currently lack sufficient empirical data,
however, to identify with specificity
those situations involving indirect
interlocks that would not inhibit
competition, or to assess accurately the
effect on competition in the banking
industry of banning indirect interlocks.
Accordingly, the agencies have provided
an exception from the prohibitions of
the Act for nondepository corporations
involved in indirect interlocks by
defining the term “representative or
nominee” to include only
representatives or nominees of natural
persons. As a result, corporations will
not be regarded as “management
officials.” However, the agencies
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Federal Register / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
r e se r v e their au th o rity p u rsu an t to § 209
o f th e A c t to p roh ib it so m e or a ll o f su ch
in d ir e c t in terlo ck in g r e la tio n sh ip s in th e
future sh o u ld in fo rm a tio n b e c o m e
a v a ila b le in d ic a tin g th at su c h a c tio n is
ju stified .
7.
—
S e c tio n 202(4) o f
th e In terlo ck s A c t d e fin e s “m a n a g e m e n t
o ffic ia l” to in c lu d e a p e r so n w h o h a s a
r e p r e se n ta tiv e or n o m in e e se r v in g in the
c a p a c ity o f a d irector, an o ffic e r w ith
m a n a g e m e n t fu n c tio n s, or an e m p lo y e e
w ith m a n a g e m e n t fu n ctio n s. T hus, a
p e r so n m a y b e reg a rd ed a s a
m a n a g e m e n t o ffic ia l o f a d e p o sito r y
o r g a n iz a tio n w ith o u t a c tu a lly serv in g a s
a m a n a g e m e n t o ffic ia l. T h e p r o p o se d
d e fin itio n o f th e term “r e p r e se n ta tiv e or
n o m in e e ” is s u e d in July sta te d th at a
p e r so n w o u ld b e c o n sid e r e d to b e the
r e p r e se n ta tiv e or n o m in e e o f a n o th er if
th e p e r so n h a d a n e x p r e s s or im p lied
d u ty to a ct on b e h a lf o f th e o th er p e r so n
w ith r e sp e c t to m a n a g e m e n t
r e sp o n s ib ilitie s. C erta in re la tio n sh ip s,
in clu d in g fa m ily , em p lo y m en t, an d
a g e n c y , w e r e sa id “n o r m a lly ” to b e
“su ffic ie n t” to e s ta b lis h th e e x is te n c e o f
a n e x p r e s s or im p lied duty.
T h e c o m m e n ts r e c e iv e d w e r e e v e n ly
d iv id e d a m on g th o s e th at su p p o rted the
p r o p o se d d e fin itio n a n d th o se th at d id
n ot. M a n y c o m m e n te r s w h o o p p o se d th e
p ro p o sa l in terp reted it a s c rea tin g an
a b so lu te p resu m p tio n o f r e p r e se n ta tiv e
or n o m in e e sta tu s b a s e d on th e liste d
r e la tio n sh ip s. B e c a u se th e a g e n c ie s d id
n o t in ten d to c r e a te an a b so lu te
p resu m p tion , th e d e fin itio n h a s b e e n
r e w ritten to cla rify th eir in ten t. T h u s, a
fa m ily , em p lo y m e n t, or a g e n c y
re la tio n sh ip b e tw e e n tw o p e r so n s
b e e v id e n c e o f an e x p r e s s or im p lied
o b lig a tio n to a ct on th e o th er’s b e h a lf
w ith r e sp e c t to m a n a g e m e n t fu n c tio n s.
S im ilarly, th e a b ility to e le c t a d irector
an d th e e x e r c is e o f th at a b ility
be
e v id e n c e o f an e x p r e s s or im p lied
o b lig a tio n b y th e e le c te d o ffic ia l to th e
e lec to r. H o w e v e r , n e ith e r the
r e la tio n sh ip nor th e e le c tio n o f a
d irector w ill in it s e lf c r e a te an e x p r e ss
or im p lied o b lig a tio n . In a d d itio n , a
p r o v is io n h a s b e e n a d d e d to th e
d e fin itio n sp e c ify in g th at w h e th e r or n o t
su ch an o b lig a tio n e x is ts w ill b e
d e te r m in e d on a c a s e b y c a s e b a s is
tak in g in to c o n sid e r a tio n a ll r e le v a n t
fa c ts, a n d th e d ete r m in a tio n w ill b e
m a d e o n ly after th e a ffe c te d p e r so n or
p e r so n s are g iv e n an o p p o rtu n ity to
resp o n d .
T h e fo llo w in g is an e x a m p le o f h o w
th e a g e n c ie s w o u ld a p p ly th e d e fin itio n
o f r e p r e se n ta tiv e or n o m in e e . If A is a
m a n a g e m e n t o ffic ia l o f a b a n k in to w n X
a n d A ’s s p o u s e B b e c o m e s a
D e fin itio n o f “representative o r
nom inee” individuals.
m ay
m ay
management official at another bank in
the same town, the appropriate
supervisory agency may question
whether B is the representative or
nominee of A. If the facts indicate that B
is not adequately qualified to be a
management official and A was
instrumental in placing B in the position,
the agencies may determine that B is a
representative or nominee of A, after A
and B are given an opportunity to
respond and fail to present facts or
arguments to refute these findings.
Situations that could warrant special
scrutiny by the agencies include those
instances when a management official
of a depository organization elects a
director to the board of directors of
another depository organization in the
same community, or a major stockholder
of two unaffiliated depository
organizations in the same community
elects directors to both organizations.
These situations warrant careful review
since the ability to elect or remove a
director demonstrates potential ability
to control the voting record and other
conduct of management responsibilities
by such director.
8. Interlocking relationships p erm itted
by agency order. While the July
regulations provide exceptions to the
prohibitions contained in the Interlocks
Act, the language of the exceptions
could be read to imply that in order to
apply for the exception, a person must
be serving currently as a management
official of the depository organizations
involved. The agencies have amended
the regulations to make clear that a
person proposing to serve as a
management official also may apply for
the exceptions. For example, a proposed
director of a State nonmember bank in
the process of organization that has
applied to the FDIC for deposit
insurance may seek the approval of the
Board of Directors of the FDIC to sit as a
director of the newly-chartered
institution while continuing to serve
another bank in the same community.
9. Interlocking relationship s perm itted
by agency order—hardship resulting
from change o f circumstances. Since the
July regulations were published, the
agencies have received requests for
exceptions from the Act by depository
organizations facing disruption of their
operations by the loss of a substantial
number of management officials due to
the application of the Interlocks Act and
the regulations. In view of the
Congressional intent to avoid undue
disruption to the operations of
depository organizations, the agencies
believe it is in keeping with the spirit of
the Act to afford some relief in certain
cases of undue hardship resulting from
m a n a g e m e n t lo s s . A c c o r d in g ly , th e
a g e n c ie s h a v e p r o v id e d a n e x te n s io n o f
th e c o m p lia n c e p e r io d for d e p o sito r y
o r g a n iz a tio n s e x p e r ie n c in g th e lo s s o f 50
p er c e n t or m ore o f th eir d irecto rs or
to ta l m a n a g e m e n t o ffic ia ls a s a r e su lt o f
c h a n g e s in c ir c u m sta n c e s req u irin g th e
term in a tio n o f m a n a g e m e n t in te r lo c k s.
U n d er th e n e w e x c e p tio n , a c o m p lia n c e
p e r io d o f up to 30 m o n th s m a y b e
g ra n ted b y th e a g e n c ie s in ord er to
m in im ize th e d isru p tio n c a u s e d b y th e
d ep artu re o f m a n a g e m e n t o ffic ia ls
w h o s e s e r v ic e is d e te r m in e d to b e
n e c e s s a r y to p r o v id e m a n a g e m e n t or
o p e r a tin g e x p e r tis e to th e d e p o sito r y
o rg a n iz a tio n . T o q u a lify for th e
e x e m p tio n , a d e p o sito r y o rg a n iz a tio n
m u st su b m it a p r o p o sa l for th e o r d e r ly
term in a tio n o f se r v ic e b y a ffe c te d
m a n a g e m e n t o ffic ia ls, a n d su c h o ffic ia ls
m u st a g ree to se v e r th eir in terlo ck in g
r e la tio n sh ip s n o la-ter th a n 30 m o n th s
a fter th e e v e n t req u irin g term in a tio n o f
th e in terlo ck .
10.
G randfathered interlocking
relationships. S e c tio n 206 o f th e
In terlo ck s A c t g ra n d fa th ers for a p e r io d
o f te n y e a r s m a n a g e m e n t o ffic ia l
in te r lo c k s in e x is te n c e o n N o v e m b e r 10,
1978, th a t w e r e n o t in v io la tio n o f
s e c tio n 8 o f th e C la y to n A c t (15 U .S.C .
§ 19) immediately prior to that date. The
proposed amendments included a
provision that interpreted this section to
mean that any person whose
interlocking position as a management
official meets these requirements may
continue to serve in that position until
November 1 0 ,1 9 8 8 . While no comments
were received in opposition to this
proposed amendment, some coraments
indicated that some clarification is
appropriate. In response, the agencies
emphasize that, in order to be eligible
for grandfather rights, it is not necessary
that the person’s interlocking service be
otherwise prohibited under sections 203
or 204 of the Interlocks Act. It is
sufficient that the interlock existed prior
to November 1 0 ,1 9 7 8 , and was not in
violation of section 8 of the Clayton Act.
The proposal has been incorporated
with only a minor change.
Several commenters pointed out that
the provision could be interpreted to
grandfather seryice at a depository
institution even when no interlock was
involved. It was the agencies’ intention
rather to grandfather interlocking
service in existence on November 10,
1978, at two or more depository
institutions. The provision on
grandfathered interlocking relationships
has been amended to reflect this intent.
It is not sufficient that a person served
as a management official of only one
depository institution or that a person
Federal Register / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
served as a management official of only
one depository organization and a
nondepository corporation. In this
regard, the agencies will not consider a
company to be a depository holding
company by virtue of having entered
into a binding contract to acquire a
depository institution prior to November
10,1978.
11. G randfathered interlocks —one-
bank holding company form ations.
Another provision in the proposed
amendments provided that a person
serving as a grandfathered management
official of two or more unaffiliated
depository organizations may not serve
as a management official of a depository
holding company created by the
acquisition of one of the institutions
while continuing to serve in an
interlocking relationship at such
institutions. The agencies have reviewed
this provision and have determined to
eliminate it. In effect, the provision
would have prevented the formation of
one-bank holding companies designed
solely to effectuate a change in
corporate form. In such cases where the
management officials of the acquired
depository institution are identical to
that of the holding company and the
majority ownership of the holding
company is identical to that of the
depository institution prior to the
acquisition, the agencies do not believe
that this type of internal reorganization
and change of corporate form should
affect grandfathered interlocks. For
practical purposes, the agencies have
determined that such reorganizations
generally do not create new interlocks
and do not affect competition among
depository institutions. Therefore,
grandfather rights are not affected and
the management officials in question
may serve the one-bank holding
company and the other depository
institution for the remainder of the
grandfather period absent some other
change of circumstances.
12. Changes in circumstances —
grandfathered interlocks. Section 206 of
the Interlocks Act provides that when a
change in circumstances causes a
particular interlocking relationship to
become prohibited, the agencies may
provide a period of up to fifteen months
for the prohibited service to be
terminated. The proposed amendments
contained a provision defining the
phrase “change in circumstances” as it
applies to grandfathered, as well as
nongrandfathered, interlocks. A majority
of the total comments received on the
regulations dealt with this provision as
it applied to grandfathered interlocks.
A number of commenters objected to
all or part of the proposed amendments
that enumerated events that would be
considered a change in circumstances
causing a loss of grandfather rights. In
large part the commenters objected that
the agencies lacked authority to
terminate grandfather rights by applying
changes in circumstances to
grandfathered interlocks and that
defining certain events as changes in
circumstances would inhibit competition
in some areas and penalize aggressive
institutions. In view of these comments,
the agencies have carefully reviewed the
legislative history of the Interlocks Act,
the statutory language, and the general
law regarding administrative
rulemaking. It remains the firm opinion
of the agencies that the Interlocks Act
requires the application of the phrase
“change in circumstances” to
grandfathered interlocks and that it is
well within the agencies’ regulatory
authority to apply the phrase to such
interlocks.
The literal language of the Interlocks
Act indicates that the drafters
contemplated the loss of grandfathered
rights under certain circumstances. The
second sentence of section 206 of the
Act states that the appropriate Federal
banking agencies may provide a
reasonable period of time for
compliance with the Act after any
change in circumstances that makes
“such service” prohibited by this title.
“Such service" refers to grandfathered
service in the immediately preceding
sentence of section 206. Moreover,
section 209 of the Act gives the agencies
a broad mandate to write regulations to
carry out the provisions of the Act and
is broad enough to authorize regulations
clarifying the prohibitions of the Act
with respect to the loss of grandfather
rights. The final amendments, therefore,
retain the provisions that apply the
change in circumstances language to
grandfathered interlocks.
W ith the exception noted below, the
agencies also have rejected general
objections to provisions within the
change in circumstances proposals.
Several commenters asserted that
defining change in circumstances to
include mergers, acquisitions,
consolidations, and branching would
penalize aggressive institutions by
forcing them to terminate valuable
management talent when expanding
their operations. The agencies note that
the Interlocks Act itself contemplates
that depository organizations must
choose between consummating certain
transactions and losing certain
management officials inasmuch as the
statutory prohibitions are keyed to asset
size and the location of offices. Neither
the Act nor the regulations prohibit
24387
depository organizations from
expanding by merger, acquisition,
consolidation, or branching.
The proposed regulations included, as
a change in circumstances that would
defeat grandfather rights, a significant
increase in the management
responsibilities of a management official
due to a change in position within an
interlocked depository organization.
Upon reconsideration, the agencies have
concluded that the inclusion of this
provision would have fostered
uncertainty with respect to management
officials of numerous depository
institutions and that the provision would
not be susceptible to consistent
enforcement at this time. The agencies
remain of the opinion, however, that the
language of section 206 of the Interlocks
Act could be correctly interpreted to
require termination of grandfathered
service due to any change in position
and reserve the authority to adopt this
interpretation in the future should it
appear appropriate to do so for purposes
of property administering the Interlocks
Act. It should be noted that deletion of
the provision from the final regulation
will not affect the manner in which the
prohibitions of the Interlocks Act apply
to management officials who shift
positions among affiliated depository
institutions.
A discussion of each type of change in
circumstances that will affect
grandfathered interlocks follows: (a)
A cquisitions, mergers, and
consolidations. Mergers, acquisitions, or
consolidations will terminate
grandfather rights for an interlocking
relationship in those situations where
one of the interlocked depository
organizations is merged with, acquires
or is acquired by, or is consolidated with
another depository organization which,
immediately prior to the transaction,
was an organization for which the
interlocking person could not have
served as a management official under
sections 203 or 204 of the Interlocks Act.
The language of this provision has been
simplified from that proposed in July
and does not effect any substantive
change. For the purposes of determining
the date on which the change in
circumstances occurs, a merger,
acquisition, or consolidation is
considered to have occurred upon
consummation. Operation of this
paragraph is illustrated by the following
example:
Director X’s service as a director of Bank A
and Bank D, both located in SMSA1, is
grandfathered. Director Y’s service as a
director of Bank B and Bank C, both located
in SMSA 1, is also grandfathered. All of the
banks have assets of over $20 million but
under $500 million. BHC l which is located in
temmma
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SMSA1 and owns Bank B, acquires Bank A .
and merges it with Bank B.
Director X's grandfather rights are defeated
for either o f two reasons: (1) Under section
203, BHC I is a depository organization for
which X could not have served as a
management official immediately prior to the
acquisition, or (2) under section 203, Bank B
is a depository organization for which X
could not have served as a management
official immediately prior to the merger. Thus,
X would have to decide whether to continue
service with Bank A or Bank D.
Director Y’s grandfather rights with respect
to his service with Banks B and C are
defeated because, under section 203, Bank A
is a depository organization for w hich Y
could not have served immediately prior to
the merger. Y, thus, would have to decide
whether to continue service with Bank B or
Bank C.
In addition, a provision has been
added in the regulation issued by the
Federal Home Loan Bank Board that
affects the manner in which the
provision will be applied to acquisitions
by diversified savings and loan holding
companies. The provision states that, for
purposes of § 563f.6(a)(l)(i) of the
Federal Home Loan Bank Board's
regulation, the term “depository
organization” includes a nondepository
corporation that will become, as a result
of an acquisition of a savings and loan
association, a diversified savings and
loan holding company. The amendment
would terminate the grandfather rights
of a management official of a savings
and loan association that is acquired by
a nondepository corporation for which
the management official could not have
served prior to the transaction had the
corporation been a depository
organization. The addition reflects the
original intention of the Federal Home
Loan Bank Board that the grandfathered
rights of a management official of a
savings and loan association that is
acquired by a diversified savings and
loan holding company should be
terminated.
(b) Branching . Newly established
branches will terminate grandfather
rights in those situations where one of
the depository organizations involved in
the grandfathered interlocking
relationship, or its depository institution
affiliate, establishes an office in the
same community as the other depository
organization, or its depository institution
affiliate, where no such office existed
previously; or where both depository
organizations, or their depository
institution affiliates, establish an office
in a community or SMSA where neither
previously had an office. For example, if
a person'8 service as a director of Bank
A and Bank B located in different cities
in the same SMSA is grandfathered and
Bank A establishes its first branch in a
city where Bank B already has a branch
or its main office, then the person’s
grandfathered rights would be
terminated. However, if Bank A and
Bank B each have a branch located in
the same city, then the banks may
establish additional branches in that
city (and adjacent and contiguous cities
thereto) without affecting the person’s
grandfather rights.
13. Changes in circumstances —nongrandfathered interlocks. The proposed
amendments identified several events
that would cause a non-grandfathered
management official interlock to become
prohibited. (A non-grandfathered
interlock is any interlock created after
November 10,1978, or an interlock that
was in violation of section 8 of the
Clayton Act on that date.) In the case of
certain involuntary events (for example,
material growth in asset size, change in
SMSA or community boundaries,
designation of new SMSA), the
organizations automatically would be
given fifteen months to conform to the
Interlocks Act unless the appropriate
agency or agencies acted to establish a
shorter period. In the event of certain
voluntary events (mergers, acquisitions,
consolidations, branching), the
organizations would be given uiftil the
next annual shareholders’ meeting to
conform to the Interlocks Act. An
extension of up to fifteen months would
be available. It should be noted that the
listed events are not exhaustive of all
such events that may cause an interlock
to become prohibited.
The agencies have relied on the
rulemaking authority in section 209 of
the Interlocks Act to apply the change in
circumstances restrictions to nongrandfathered interlocks in addition to
grandfathered interlocks. Inasmuch as
the agencies recieved no unfavorable
comments concerning these provisions,
the agencies are retaining them in the
final amendments with a minor change
as noted in paragraph fourteen of the
discussion below.
14. Changes in circum stances —
compliance period. The proposed
amendments listed changes in
circumstances which, if they occurred
after March 9,1979, would require the
termination of grandfathered
interlocking service. The proposed
amendments were based on section 206
of the Interlocks Act, which provides
that when a change in circumstances
causes a particular interlocking
relationship between two depository
organizations to become prohibited, the
agencies may allow the relationship to
continue for a period of time not
exceeding 15 months from the date on
which the relationship became
prohibited. The agencies proposed the
March 9 date because March 10,1979,
was the effective date of the Interlocks
Act and thus was the date upon which
the prohibitions of the Interlocks Act
became applicable to interlocking
relationships. A number of commenters
felt that the March 9 date was
inappropriate since the proposed
amendments were not published until
July 19,1979. The commenters asserted
that many depository organizations
would have structured various
transactions in a different manner had
they been aware of the exact nature of
the events that would terminate
grandfather rights. Some commenters
also asserted that publication of the
regulations at a time when many
depository organizations are holding
their annual meetings would cause
hardship for some organizations which
have already sent out notices to
shareholders nominating directors and
have annual meetings scheduled to
occur shortly. The commenters therefore
suggested that the agencies amend the
date after which changes in
circumstances would terminate
grandfather rights.
In response to these comments, the
agencies have amended the change in
circumstances provision to provide an
additional grace period for compliance
in cases where a change in circumstance
requiring termination of grandfather
rights occurred prior to the effective
date of these final amendments. The
agencies do not believe it is appropriate
to ignore changes that occurred prior to
the date of the proposed amendments,
as some commenters suggested, since to
do so would permit uninterrupted
service until 1988 contrary to the
prohibitions of the Interlocks Act. Thus,
an event falling within the categories of
changes in circumstances will be
considered a change that terminates
grandfather rights. However, if that
event occurred prior to the effective date
of the final amendments, the grace
period will commence on the effective
date of the amendments. The regulations
also grant a grace period to persons
whose grandfathered service was
prohibited on March 10,1979, due to a
change in circumstances occurring
between November 10,1978, and March
9,1979. Without such a grace period, the
Interlocks Act would necessitate
immediate termination of such service.
The provisions of the proposed
amendments concerning nongrandfathered interlocks that become
prohibited as a result of a change in
circumstances also have been rewritten
to apply the grace period to interlocking
service that becomes prohibited as a
Federal Register / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
result of a change in circumstances. The
agencies are making the above changes
pursuant to their authority under section
209 of the Interlocks Act to permit
service that is otherwise prohibited.
The proposed amendments stated that
a person may continue to serve for a
certain period as a management official
of "both organizations” involved in the
prohibited interlocking relationship.
Since many interlocks involve more than
two organizations, the language has
been revised to make clear that the
person may continue to serve as a
management official of “all”
organizations involved in the prohibited
interlocking relationship.
Accordingly, 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
amend 12 CFR by revising Parts 212, 26,
348, 563f, and 711, respectively, to read
as follows:
FEDERAL RESERVE SYSTEM
12 CFR Part 212
[Regulation L— Docket No. R-0198)
PART 212— MANAGEMENT OFFICIAL
INTERLOCKS
Sec.
212.1 Authority, purpose, and scope.
212.2 Definitions.
212.3 General prohibitions.
212.4 Permitted Interlocking Relationships.
212.5 Grandfathered Interlocking
Relationships.
212.6 Changes in circumstances.
212.7 Effect of Interlocks Act on Clayton
Act.
212.8 Enforcement.
Authority: Depository Institution
Management Interlocks Act (“Interlocks
Act”) (12 U.S.C. 3201 et seq.)
§212.1
Authority, purpose, and scope.
(a) A u th o rity. This part is issued
under the provisions of the Depository
Institution Management Interlocks Act
(“Interlocks Act”) (12 U.S.C. 3210 et
seq.).
(b) Purpose and scope. The general
purpose of the Interlocks Act and this
part is to foster competition by generally
prohibiting a management official of a
depository institution or depository
holding company from also serving as a
management official of another
depository institution or depository
holding company if the two
organizations (1) are not affiliated and
(2) are very large or are located in the
same local area. This part applies to
management officials of State member
banks, bank holding companies, and
their affiliates.
§212.2
Definitions.
For the purpose of this part, the
following definitions apply:
(a) "Adjacent cities, towns, or
villages” means cities, towns or villages
whose borders are within ten road miles
of each other at their closest points. The
property line of an office located in an
unincorporated city, town, or village is
regarded as the boundary line of that
city, town, or village for the purpose of
this definition.
(b) “Affiliate” has the meaning given
in section 202 of the Interlocks Act. For
purposes of section 202, an individual’s
shares include shares of members of his
or her immediate family. For the purpose
of section 202(3)(B) of the Interlocks Act,
an affiliate relationship based on
common ownership does not exist if the
appropriate Federal supervisory agency
or agencies determine, after giving the
affected persons the opportunity to
respond, that the asserted affiliation
appears to have been established in
order to avoid the prohibitions of the
Interlocks Act and does not represent a
true commonality of interest between
the depository organizations. In making
this determination, the agencies will
consider, among other things, whether a
person, including members of his or her
immediate family, whose shares are
necessary to constitute the group owns a
nominal percentage of the shares of one
of the organizations and the percentage
is substantially disproportionate with
that person’s ownership of shares in the
other organization. “Immediate family”
includes spouse, mother, father, child,
grandchild, sister, brother, or any of
their spouses, whether or not any of
their shares are held in trust.
(c) "Community” means city, town, or
village, or contiguous or adjacent cities,
towns, or villages.
(d) “Contiguous cities, towns, or
villages” means cities, towns, or villages
whose borders actually touch each
other.
(e) “Depository holding company”
means a bank holding company or a
savings and loan holding company (as
more fully defined in section 202 of the
Interlocks Act) having its principal
office located in the United States.
(f) "Depository institution” means a
commercial bank (including a private
bank), a savings bank, a trust company,
a savings and loan association, a
building and loan association, a
homestead association, a cooperative
bank, an industrial bank, or a credit
union, chartered in the United States
and having a principal office located in
the United States. Additionally, a United
24389
S ta te s o ffic e , in c lu d in g a b ra n ch or
a g e n c y , o f a foreign c o m m e r c ia l b a n k is
a “d e p o sito r y in stitu tio n .”
(g) “Depository organization” means a
depository institution or a depository
holding company.
(h) “Management official” means an
employee or officer with management
functions (including a branch manager),
a director (including an advisory
director or honorary director), a trustee
of a business organization under the
control of trustees [e.g., a mutual savings
bank), or any person who has a
representative or nominee serving in
any such capacity. “Management
official” does not mean a person whose
management functions relate
exclusively to the business of retail
merchandising or manufacturing, for the
purposes of section 212.3(c) of this Part,
and does not mean a person whose
management functions relate principally
to the business outside the United States
of a foreign commercial bank.
"Management official” does not include
persons described in the provisos of
section 202(4) of the Interlocks Act.
(i) “Office” of a depository institution
means a principal office or a branch
office located in the United States, but
does not include a representative office
of a foreign commercial bank, an
electronic terminal, or a loan production
office. “Office” of a depository holding
company means its principal corporate
headquarters.
(j) “Person” means a natural person,
corporation, or other business.
(k) "Representative or nominee”
means a person who serves as a
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, and the appropriate Federal
supervisory agency or agencies will
determine, after giving the affected
persons an opportunity to respond,
whether a person is a “representative or
nominee.” Certain relationships,
including family, employment, or 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 by the
management official to another person.
For the purposes of this definition,
“person” shall include only natural
persons.
(l) “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 depository
holding company include the total assets
of its depository institution affiliates for
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Federal Register / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
the purposes of § 212.3(b) of this part,
and include the to'al assets of all of its
affiliates for purposes of § 212.3(c). Total
assets of a United States branch or
agency of a foreign commercial bank
means total assets of such branch or
agency itself exclusive of the assets of
the other offices of the foreign
commercial bank.
(m)
“United States” means any State
of the United States, the District of
Columbia, any territory of the United
States, Puerto Rico, Guam, American
Samoa, or the Virgin Islands.
§ 212.3
General prohibitions.
(a) Com m unity. 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) Offices of both are located
in the same community: (2) offices of
depository institution affiliates of both
are located in the same community: or
(3) an office of one of the depository
organizations is located in the same
community as an office of a depository
institution affiliate of the other.
(b) 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)
Offices of both are located in the same
Standard Metropolitan Statistical Area
(“SMSA”) and either has total assets of
$20 million or more: (2) offices of
depository institution affiliates of both
are located in the same SMSA and
either of the depository institution
affiliates has total assets of $20 million
or more; or (3) an office of one of the
depository organizations is located in
the same SMSA as an office of a
depository institution affiliate of the
other and either the depository
organization or the depository
institution affiliate has total assets of
$20 million or more.
(c) M a jo r Assets. Without regard to
location, a management official of a
depository organization with total assets
exceeding $1 billion or a management
official of any affiliate of the greater
than $1 billion depository organization
may not serve at the same time as a
management official of a nonaffiliated
depository organization with total assets
exceeding $500 million or a management
official of any affiliate of the greater
than $500 million depository
organization.
§ 212.4 Permitted interlocking
relationships.
(a) Interlocking relationships
perm itted by statute. The prohibitions of
§ 212.3 do not apply in the case of any
one or more of the following
organizations or their subsidiaries:
(1) A depository organization that
does not do business within the United
States except as an incident to its
activities outside the United States;
(2) A corporation operating under
section 25 or 25(a) of the Federal
Reserve Act ("Edge Corporations” and
“Agreement Corporations”):
(3) A depository organization that has
been placed formally in liquidation, or
that is in the hands of a receiver,
conservator, or other official exercising
a similar function;
(4) A credit union being served by a
management official of another credit
union;
(5) A State-chartered savings and loan
guaranty corporation; or
(6) A Federal Home Loan Bank or any
other bank organized solely for the
purpose of serving depository
institutions (commonly referred to as
“bankers’ banks”) or solely for the
purpose of providing securities clearing
services and services related thereto for
depository institutions, securities
companies, or both.
(b) Interlocking relationships
p erm itted by Board order. A
management official or a prospective
management official of a State member
bank, bank holding company, or affiliate
of either may apply for the Board’s prior
approval to enter into a relationship
involving another depository
organization that would otherwise be
prohibited under § 212.3, if the
relationship falls within any of the
classifications enumerated in this
paragraph. If the relationship involves a
depository organization subject to the
supervision of another Federal
supervisory agency as specified in
section 207 of the Interlocks Act, the
management official or prospective
management official must also obtain
the prior approval of that other agency.
(1) O rganization in lo w incom e area;
m in o rity o r wom en’s organization. A
person 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 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 appropriate Federal
supervisory agency or agencies
determine the relationship to be
necessary to provide management or
operating expertise to the organization
specified in Paragraph (b)(l)(i) or (ii) of
this; (B) no interlocking relationship
permitted by this paragraph 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 or agencies in any specific case.
(2) N ew ly-chartered organization. A
person may serve at the same time as a
management official of two or more
depository organizations if one of the
depository organizations (or an affiliate
thereof) is a newly-chartered
organization, subject to the following
conditions: (i) The appropriate Federal
supervisory agency or agencies
determine the relationship to be
necessary to provide management or
operating expertise to the newlychartered organization; (ii) no
interlocking relationship permitted by
this paragraph shall continue for more
than two years after the newlychartered organization commences; and
(iii) other conditions in addition to or in
lieu of the foregoing may be imposed by
the appropriate Federal supervisory
agency or agencies in any specific case.
(3) Conditions endangering safety o r
soundness. A person may serve at the
same time as a management official of
two or more depository organizations
(or affiliates thereof) if the primary
Federal supervisory agency of one of the
depository organizations believes that
such depository organization faces
conditions endangering the
organization’s safety or soundness,
subject to the following conditions: (i)
The appropriate Federal supervisory
agency or agencies determine the
relationship to be necessary to provide
management or operating expertise to
the 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 or agencies in any specific case.
(4) O rganization sponsoring credit
union. A management official of a
depository organization or its affiliate
may serve at the same time as a
management official of a Federallyinsured credit union that is sponsored
by the depository organization or its
affiliate primarily to serve employees of
the depository organization.
(5) Loss o f management o ffic ia ls due
to changes in circumstances. If a
depository organization experiences a
change in circumstances described in
paragraphs (a)(1), (b)(1), or (b)(2) of
§ 212.6, and the change requires the
termination of service at the depository
organization of 50 per cent or more of
the organization’s directors or of 50 per
cent or more of the total management
officials of the depository organization,
such management officials may continue
to serve in excess of the time periods
Federal R egister / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
provided in paragraphs (a)(2), (b)(1), and
(b)(2) of § 212.6: Provided, That: (i) The
appropriate Federal supervisory agency
or agencies determines that the service
by such management officials is
necessary to provide management or
operating expertise: (ii) each
management official so affected agrees
to sever the prohibited interlocking
relationship no later than 30 months
after the change in circumstances; (iii)
the depository organization submits a
proposal for the orderly termination of
service by such management officials
over the time period provided; and (iv)
other conditions in addition to or in lieu
of the foregoing may be imposed by the
appropriate Federal supervisory agency
or agencies in any specific case.
§ 212.5 Grandfathered Interlocking
Relationships.
A person whose interlocking service
in a position as a management official of
two or more depository organizations
began prior to November 10,1978, and
was not immediately prior to that date
in violation of section 8 of the Clayton
Act (15 U.S.C. 19) is not prohibited from
continuing to serve in such interlocking
positions until November 10,1988,
except as provided in § 212.6(a).
§ 212.6
Changes In circumstances.
(a)(1) Grandfathered interlocks. If a
person’s service as a management
official is grandfathered under § 212.5
the person must terminate such service
if the service becomes prohibited by the
occurrence of any of the following
changes in circumstances:
(1) Acquisitions, mergers, and
consolidations. One of the depository
organizations involved in the
interlocking relationship acquires or is
acquired by, is merged into or with, or is
consolidated w itb another depository
organization for which prior to the
transaction the person could not have
served as a management official under
§ 212.3; or
(ii) Branching. One of the depository
organizations involved in the
grandfathered interlocking relationship,
or its depository institution affiliate,
establishes an initial office in the same
community as the other depository
organization, or its depository institution
affiliate, or both of the depository
organizations, or their depository
institution affiliates, establish offices in
a community or SMSA where neither
previously had an office.
(2) Grace period. If a person’s
grandfathered service becomes
prohibited under paragraph (a)(1) of this
section, the person may continue to
serve as a management official of all
organizations involved in the prohibited
interlocking relationship through the
date of the next regularly scheduled
annual shareholders’ meeting of any of
the organizations involved, whichever
occurs last, unless the appropriate
Federal supervisory agency or agencies
take affirmative action in an individual
case to establish a shorter period.
However, the person may request the
appropriate agency or agencies to grant
an additional extension of time to
continue the interlocking relationship,
but the prohibited interlocking
relationship may not continue for more
than 15 months from the date of the
change in circumstances. If the change
in circumstances occurred prior to May
9.1980, the change will be considered to
have occurred on May 9,1980, for
purposes of this paragraph.
(b)(1) Non-grandfathered interlocks;
involuntary changes; grace period. If a
person’s service as a management
official is not grandfathered under
§ 212.5 and becomes prohibited as a
result of an increase in the asset size of
an organization due to natural growth,
or as a result of a change in SMSA or
community boundaries or the
designation of a new SMSA, the person
has 15 months from the date of the
change in circumstances to comply with
this part, unless the appropriate Federal
supervisory agency or agencies take
affirmative action in an individual case
to establish a shorter period. If the
change in circumstances occurred prior
to May 9,1980, the change will be
considered to have occurred on May 9,
1980 for purposes of this subparagraph.
(2) Non-grandfathered interlocks;
voluntary changes; grace period. If a
person’s service as a management
official is not grandfathered under
§ 212.5 and becomes prohibited as a
result of an acquisition, merger,
consolidation, or the establishment of an
office, the person may continue to serve
as a management official of all
organizations involved in the prohibited
interlock through the date of the next
regularly scheduled annual
shareholders’ meeting of any of the
organizations involved, whkdiever
occurs last, unless the appropriate
Federal supervisory agency or agencies
take affirmative action in an individual
case to establish a shorter period.
However, the person may request the
appropriate agency or agencies to grant
an additional extension of time to
continue the interlocking relationship,
but the prohibited interlocking
relationship may not continue for more
than 15 months from the date of the
change in circumstances. If the change
in circumstances occurred prior to May
9.1980, the change will be considered to
24391
have occurred on May 9,1980 for
purposes of this paragraph.
§ 212.7
Act
Effect of Interlocks Act on Clayton
The Board of Governors of the Federal
Reserve System regards the provisions
of the first three paragraphs of section 8
of the Clayton Act (15 U.S.C. 19) to have
been supplanted by the revised and
more comprehensive prohibitions on
management official interlocks between
depository organizations in the
Interlocks Act.
§ 212.8
Enforcement
The Board of Governors of the Federal
Reserve System administers and
enforces the Interlocks Act with respect
to State member banks, bank holding
companies, and their affiliates, and may
refer the case of a prohibited
interlocking relationship involving any
such organization, regardless of the
nature of any other organization
involved in the prohibited relationship,
to the Attorney General of the United
States to enforce compliance with the
Interlocks Act and this part. If an
affiliate of a S tate member bank or bank
holding company is primarily subject to
the regulation of another Federal
supervisory agency, then the Board does
not administer and enforce the
Interlocks Act with respect to that
affiliate.
Board of Governors of the Federal Reserve
System, April 3,1980.
Griffith L. Garwood,
Deputy Secretary of the Board.
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Federal Register / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
FEDERAL RESERVE SYSTEM
12 CFR Part 212
DEPARTM ENT OF TH E TREASURY
Comptroller of the Currency
12 CFR Part 26
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 348
FEDERAL HOME LOAN BANK BOARD
12 CFR Part 563f
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 711
[Docket No. R-0198]
Management Official Interlocks; Final
Amendments to Existing Regulations
AGENCIES: Board of Governors of the
Federal Reserve System, Comptroller of
the Currency, Federal Deposit Insurance
Corporation, Federal Home Loan Bank
Board, and National Credit Union
Administration.
ACTION: Final amendments to existing
regulations.
SUMMARY: On July 19,1979, the agencies
published regulations, as well as
proposed amendments to those
regulations, under the Depository
Institution Management Interlocks Act
(Title II of the Financial Institutions
Regulatory and Interest Rate Control
Act of 1978) (the “Interlocks Act”). The
Interlocks Act prohibits certain
management official interlocks between
depository institutions, depository
holding companies, and their affiliates.
The final amended regulations
published in full below include certain
clarifying and technical changes in the
regulations published in July, and add a
definition of the term “representative or
nominee,” as well as provisions
concerning “grandfather” rights and
"changes in circumstances.” In addition,
the final amendments add a provision
that extends the compliance period for
depository organizations experiencing a
disruptive loss of management as a
result of a change in circumstances.
These amendments are considered to be
significant within the meaning of
Executive Order 12044 ("Improving
Government Regulations”), i.e., they will
be of substantial interest to the financial
institutions community and the public
[Enc. Cir. No. 8818]
because they include provisions that are
determinative of whether or not certain
interlocking relationships are prohibited.
EFFECTIVE DATE: May 9,1980.
FOR FURTHER INFORMATION CONTACT:
Bronwen Mason (202) 452-3564 or
Melanie Fein (202) 452-3594, Board of
Governors of the Federal Reserve
System: Gwenn Hibbs (202) 447-1880 or
Howard Finkelstein (202) 447-1880,
Office of the Comptroller of the
Currency; Pamela LeCren (202) 389-4433,
Federal Deposit Insurance Corporation;
Kathleen Topelius (202) 377-6444 or
Kenneth Hall (202) 377-6443, Federal
Home Loan Bank Board; Ross Kendall
(202) 357-1030, National Credit Union
Administration.
SUPPLEMENTARY INFORMATION: The
Depository Institution Management
Interlocks Act was enacted on
November 10,1978, as Title II of the
Financial Institutions Regulatory and
Interest Rate Control Act of 1978 (12
U.S.C. 3201 et seq.). On July 19,1979, the
agencies published regulations
implementing the Interlocks Act (44 FR
42152), effective immediately upon
publication. At the same time, the
agencies issued proposed amendments
to complete the regulations (44 FR 42212)
by clarifying certain issues not
addressed in the regulations. In
addition, comment was sought on
whether or not the agencies should
define "person” so as to exclude
corporations-or other business entities
from being considered "management
officials” for the purpose? of the
Interlocks Act. Public comment was
invited for sixty days, until September
17,1979, regarding both the regulations
and the proposed amendments.
The agencies received approximately
15 comments concerning the regulations
and approximately 65 comments
concerning the proposed amendments.
Upon careful review of the comments,
as well as experience gained in
administering the Interlocks Act
regulations, the agencies have decided
to make certain technical and clarifying
changes in the July regulations and to
adopt the proposed amendments with
certain modifications.
The final amended regulations are
designed to further the purpose of the
Interlocks Act to foster competition
among depository institutions. Because
the Interlocks Act requires that
exceptions from the Act’s prohibitions
be created by regulations, it is necessary
for the agencies to issue these formal
regulations. However, consistent with
Executive Order 12044 ("Improving
Government Regulations,” 43 FR 12661),
the agencies have determined that no
increased costs from recordkeeping or
reporting will result from compliance
with the regulations, and accordingly, no
cost-benefit analysis of the regulations
is necessary.
In accordance with section 553(d) of
the Administrative Procedure Act (5
U.S.C. 500, et seq.), the final
amendments to the regulations
implementing the Interlocks Act will be
effective May 9,1980. An explanation of
each of the changes to the regulations
made by the final amendments and a
discussion of the comments received are
set forth below.
1. Definition o f “ adjacent. ” The
regulations issued in July defined
"adjacent” to mean cities, towns, or
villages that are within ten miles of one
another at their closest points. However,
the agencies specifically solicited
comment on whether a distinction
should be made between adjacent areas
in rural and urban locations. For
example, consideration was given to
treating as adjacent, cities, towns* or
villages within ten miles of each other
and located in an SMSA, and to treating
as adjacent, cities, towns, or villages
located within 25 miles of each other but
not within an SMSA. The agencies
received few comments on this proposal
and therefore believe that a distinction
between commuting and travel patterns
in rural and urban areas is not
warranted. Thus, the definition of
adjacent has not been substantively
amended at this time.
The final amendments do, however,
clarify the definition of adjacent by
specifying that the distance between
cities, towns, or villages is measured by
road miles. Thus, cities located on
opposite banks of a river will not be
considered adjacent if the distance
between them via the nearest bridge is
more than 10 miles.
2. Definition o f "affiliate. ” The
definition of “affiliate” has been
clarified in two respects. Language has
been added to the regulations to
emphasize that, for the purposes of
section 202(3)(B) of the Interlocks Act,
the shares owned by a given individual
include any shares that are owned by
members of the individual’s immediate
family. In addition, the definition of
“immediate family” has been amended
to include specifically the spouse of an
individual.
3. Definition o f “
depository
institution ”—application o f Interlocks
A ct to foreign banks. The regulations
are intended to subject only
Federal Register / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
management officials serving United
States offices of foreign banks to the
provisions of the Interlocks Act and not
to prohibit certain interlocking
relationships outside the United States
betw een two foreign banks having
subsidiary banks, branches or agencies
located in the United States. The
regulations issued in July may not have
accurately reflected the agencies’
determination in this respect.
Accordingly, the agencies have
amended the definition of “depository
institution” to make clear that only
institutions chartered in the United
States and having a principal office
located in the United States, as well as
United States offices of foreign
commercial banks, are depository
institutions for the purposes of the
Interlocks Act.
4. D e fin itio n o f “office. ” The July
regulations did not make any distinction
in the definition of “office” between that
of a depository institution and that of a
depository holding company. Thus, in
some cases, an office of a depository
holding company coidd be interpreted to
include a location at which the
depository holding company conducts
its operations, such as a plant or storage
facility. The agencies do not believe that
the provisions of section 203 of the
Interlocks Act were intended to apply to
locations of a depository holding
company not involved in the conduct of
depository business, and they did not
intend the regulations to have that
result. Accordingly, the agencies have
added a technical amendment to clarify
the scope of the definition of “office”
with respect to a depository holding
company. The regulation has been
amended to define the office of a
depository holding company (that is not
also a depository institution) as its
principal corporate headquarters.
5. D e fin itio n o f “management
o ffic ia l”—exclusion o f certain persons.
A manager of a depository holding
company’s retail or manufacturing
subsidiary might be precluded by
section 204 of the Interlocks Act from
serving as a management official of any
depository organization with assets in
excess of $500 million, if the
consolidated assets of the depository
holding company exceed $1 billion.
Because the agencies do not believe that
Congress intended to prohibit
management service by individuals
whose functions relate exclusively to
retail merchandising or manufacturing,
the July regulations excluded such
persons from the definition of
“management official.” The preamble to
the July regulations requested comment
concerning whether other categories of
persons whose functions relate
exclusively to nonfinancial business
activities should also be excluded from
the definition. While several
commenters suggested that the agencies
should broaden the class of persons
excluded from the definition of
"management official,” no specific
situations demonstrating the need for
additional categories were cited. In the
absence of any evidence of specific
situations that would warrant further
exclusions, the agencies have decided to
retain the definition as originally
promulgated. The agencies have made a
technical amendment to the phrasing of
the exclusionary sentence to clarify that
the exclusion applies only to depository
organizations subject to the prohibitions
of section 204 of the Interlocks Act.
6.
D e fin itio n o f “person. ” Section
202(4) of the Interlocks Act defines the
term “management official” to include
“any person” who has a representative
or nominee serving as an employee or
officer with management functions or
serving as a director. The term “any
person” could be interpreted to include
corporations and other businesses, and
as a result, a nondepository corporation
that has one officer serving as a director
of one depository organization and
another officer serving as a director of
another depository organization could
be regarded as a management official
(through its “representatives” or
“nominees”) subject to the Interlocks
Act prohibitions. The agencies
requested comment concerning whether
to define the term “person” for purposes
of the Interlocks Act so as to exclude
corporations or other businesses.
Specifically, the agencies proposed three
alternative approaches regarding this
issue:
1. Define the term “any person” to
mean only natural persons;
2. Define the term to mean
corporations, other businesses, and
natural persons; or
3. Define the term to mean
corporations, other businesses, and
natural persons, and in the case of
corporations or other businesses to limit
the applicability to those circumstances
in which an individual acts in a
demonstrably representative manner on
behalf of the corporate or business
principal.
The agencies received approximately
16 comments concerning this issue. A
majority of the comments favored
alternative 1, with a significant number
also endorsing alternative 3 as a second
choice, while one comment favored
alternative 2. A number of commenters
asserted that the inclusion of
corporations in the definition of
"person” would be anticompetitive since
24385
depository organizations often compete
for a nondepository company’s business
by inviting company officials to serve on
the depository organization’s board of
directors. The commenters also asserted
that the inclusion of corporations in the
definition of “person” would deprive
many depository organizations of
individuals possessing valuable
business experience and talent.
After careful evaluation of all the
comments and review of the legislative
history and relevant legal principles, the
agencies have adopted a modified
version of alternative 3. The regulations
define the term “person” to include
corporations, other businesses, and
natural persons, but limit the application
of the provision by excepting
corporations and other businesses from
the definition of “representative or
nominee.” The agencies believe that
inclusion of corporations and other
businesses in the term “person” is
required by the language of the
Interlocks Act, the absence of any
evidence of legislative intent to narrow
the term, and by the statutory purpose to
foster competition in the banking
industry. Indeed, the agencies are of the
view that situations may arise in which
the indirect interlock created when
representatives of a third firm serve as
management officials of two or more
depository institutions could inhibit
competition among those depository
institutions. Thus, an interpretation of
the statute that in effect denied the
agencies regulatory authority to deal
with such anticompetitive relationships
would unnecessarily frustrate the
purpose of the Interlocks Act.
Accordingly, the agencies have adopted
the second proposed definition of the
term "person” as a matter of statutory
construction.
The agencies nevertheless recognize
that not all situations involving indirect
interlocks among depository institutions
would inhibit competition among
depository organizations. The agencies
currently lack sufficient empirical data,
however, to identify with specificity
those situations involving indirect
interlocks that would not inhibit
competition, or to assess accurately the
effect on competition in the banking
industry of banning indirect interlocks.
Accordingly, the agencies have provided
an exception from the prohibitions of
the Act for nondepository corporations
involved in indirect interlocks by
defining the term “representative or
nominee” to include only
representatives or nominees of natural
persons. As a result, corporations will
not be regarded as “management
officials.” However, the agencies
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Federal Register / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
reserve their authority pursuant to § 209
of the Act to prohibit some or all of such
indirect interlocking relationships in the
future should information become
available indicating that such action is
justified.
7.
Definition o f “
representative or
nom inee"—individuals. Section 202(4) of
the Interlocks Act defines “management
official” to include a person who has a
representative or nominee serving in the
capacity of a director, an officer with
management functions, or an employee
with management functions. Thus, a
person may be regarded as a
management official of a depository
organization without actually serving as
a management official. The proposed
definition of the term "representative or
nominee” issued in July stated that a
person would be considered to be the
representative or nominee of another if
the person had an express or implied
duty to act on behalf of the other person
with respect to management
responsibilities. Certain relationships,
including family, employment, and
agency, were said “normally” to be
“sufficient” to establish the existence of
an express or implied duty.
The comments received were evenly
divided among those that supported the
proposed definition and those that did
not. Many commenters who opposed the
proposal interpreted it as creating an
absolute presumption of representative
or nominee status based on the listed
relationships. Because the agencies did
not intend to create an absolute
presumption, the definition has been
rewritten to clarify their intent. Thus, a
family, employment, or agency
relationship between two persons m ay
be evidence of an express or implied
obligation to act on the other’s behalf
with respect to management functions.
Similarly, the ability to elect a director
and the exercise of that ability m a y be
evidence of an express or implied
obligation by the elected official to the
elector. However, neither the
relationship nor the election of a
director will in itself create an express
or implied obligation. In addition, a
provision has been added to the
definition specifying that whether or not
such an obligation exists will be
determined on a case by case basis
taking into consideration all relevant
facts, and the determination will be
made only after the affected person or
persons are given an opportunity to
respond.
The following is an example of how
the agencies would apply the definition
of representative or nominee. If A is a
management official of a bank in town X
and A’s spouse B becomes a
management official at another bank in
the same town, the appropriate
supervisory agency may question
whether B is the representative or
nominee of A. If the facts indicate that B
is not adequately qualified to be a
management official and A was
instrumental in placing B in the position,
the agencies may determine that B is a
representative or nominee of A, after A
and B are given an opportunity to
respond and fail to present facts or
arguments to refute these findings.
Situations that could w arrant special
scrutiny by the agencies include those
instances when a management official
of a depository organization elects a
director to the board of directors of
another depository organization in the
same community, or a major stockholder
of two unaffiliated depository
organizations in the same community
elects directors to both organizations.
These situations w arrant careful review
since the ability to elect or remove a
director dem onstrates potential ability
to control the voting record and other
conduct of management responsibilities
by such director.
8. Interlocking relationships perm itted
b y agency order. While the July
regulations provide exceptions to the
prohibitions contained in the Interlocks
Act, the language of the exceptions
could be read to imply that in order to
apply for the exception, a person must
be serving currently as a management
official of the depository organizations
involved. The agencies have amended
the regulations to make clear that a
person proposing to serve as a
management official also may apply for
the exceptions. For example, a proposed
director of a State nonmember bank in
the process of organization that has
applied to the FDIC for deposit
insurance may seek the approval of the
Board of Directors of the FDIC to sit as a
director of the newly-chartered
institution while continuing to serve
another bank in the same community.
9. Interlocking relationships perm itted
b y agency order—hardship resulting
from change o f circumstances. Since the
July regulations were published, the
agencies have received requests for
exceptions from the Act by depository
organizations facing disruption of their
operations by the loss of a substantial
number of management officials due to
the application of the Interlocks Act and
the regulations. In view of the
Congressional intent to avoid undue
disruption to the operations of
depository organizations, the agencies
believe it is in keeping with the spirit of
the Act to afford some relief in certain
cases of undue hardship resulting from
management loss. Accordingly, the
agencies have provided an extension of
the compliance period for depository
organizations experiencing the loss of 50
per cent or more of their directors or
total management officials as a result of
changes in circumstances requiring the
termination of management interlocks.
Under the new exception, a compliance
period of up to 30 months may be
granted by the agencies in order to
minimize the disruption caused by the
departure of management officials
whose service is determined to be
necessary to provide management or
operating expertise to the depository
organization. To qualify for the
exemption, a depository organization
must submit a proposal for the orderly
termination of service by affected
management officials, and such officials
must agree to sever their interlocking
relationships no later than 30 months
after the event requiring termination of
the interlock.
10.
Grandfathered interlocking
relationships. Section 206 of the
Interlocks Act grandfathers for a period
of ten years management official
interlocks in existence on November 10,
1978, that were not in violation of
section 8 of the Clayton Act (15 U.S.C.
§ 19) immediately prior to that date. The
proposed amendments included a
provision that interpreted this section to
mean that any person whose
interlocking position as a management
official meets these requirements may
continue to serve in that position until
November 10,1988. While no comments
were received in opposition to this
proposed amendment, some coaaments
indicated that some clarification is
appropriate. In response, the agencies
emphasize that, in order to be eligible
for grandfather rights, it is not necessary
that the person’s interlocking service be
otherwise prohibited under sections 203
or 204 of the Interlocks Act. It is
sufficient that the interlock existed prior
to November 10,1978, and was not in
violation of section 8 of the Clayton Act.
The proposal has been incorporated
with only a minor change.
Several commenters pointed out that
the provision could be interpreted to
grandfather service at a depository
institution even w hen no interlock w as
involved. It w as the agencies’ intention
rather to grandfather interlocking
service in existence on November 10,
1978, at two or more depository
institutions. The provision on
grandfathered interlocking relationships
has been amended to reflect this intent.
It is not sufficient that a person served
as a management official of only one
depository institution or that a person
Federal R egister / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
served as a management official of only
one depository organization and a
nondepository corporation. In this
regard, the agencies will not consider a
company to be a depository holding
company by virtue of having entered
into a binding contract to acquire a
depository institution prior to November
10,1978.
11. G randfathered interlocks —one-
bank holding company form ations.
Another provision in the proposed
amendments provided that a person
serving as a grandfathered management
official of two or more unaffiliated
depository organizations may not serve
as a management official of a depository
holding company created by the
acquisition of one of the institutions
while continuing to serve in an
interlocking relationship at such
institutions. The agencies have reviewed
this provision and have determined to
eliminate it. In effect, the provision
would have prevented the formation of
one-bank holding companies designed
solely to effectuate a change in
corporate form. In such cases where the
management officials of the acquired
depository institution are identical to
that of the holding company and the
majority ownership of the holding
company is identical to that of the
depository institution prior to the
acquisition, the agencies do not believe
that this type of internal reorganization
and change of corporate form should
affect grandfathered interlocks. For
practical purposes, the agencies have
determined that such reorganizations
generally do not create new interlocks
and do not affect competition among
depository institutions. Therefore,
grandfather rights are not affected and
the management officials in question
may serve the one-bank holding
company and the other depository
institution for the remainder of the
grandfather period absent some other
change of circumstances.
12. Changes in circumstances —
grandfathered interlocks. Section 206 of
the Interlocks Act provides that when a
change in circumstances causes a
particular interlocking relationship to
become prohibited, the agencies may
provide a period of up to fifteen months
for the prohibited service to be
terminated. The proposed amendments
contained a provision defining the
phrase “change in circumstances” as it
applies to grandfathered, as well as
nongrandfathered, interlocks. A majority
of the total comments received on the
regulations dealt with this provision as
it applied to grandfathered interlocks.
A number of commenters objected to
all or part of the proposed amendments
that enumerated events that would be
considered a change in circumstances
causing a loss of grandfather rights. In
large part the commenters objected that
the agencies lacked authority to
terminate grandfather rights by applying
changes in circumstances to
grandfathered interlocks and that
defining certain events as changes in
circumstances would inhibit competition
in some areas and penalize aggressive
institutions. In view of these comments,
the agencies have carefully reviewed the
legislative history of the Interlocks Act,
the statutory language, and the general
law regarding administrative
rulemaking. It remains the firm opinion
of the agencies that the Interlocks Act
requires the application of the phrase
“change in circumstances” to
grandfathered interlocks and that it is
well within the agencies’ regulatory
authority to apply the phrase to such
interlocks.
The literal language of the Interlocks
Act indicates that the drafters
contemplated the loss of grandfathered
rights under certain circumstances. The
second sentence of section 206 of the
Act states that the appropriate Federal
banking agencies may provide a
reasonable period of time for
compliance with the Act after any
change in circumstances that makes
“such service” prohibited by this title.
“Such service” refers to grandfathered
service in the immediately preceding
sentence of section 206. Moreover,
section 209 of the Act gives the agencies
a broad mandate to write regulations to
carry out the provisions of the Act and
is broad enough to authorize regulations
clarifying the prohibitions of the Act
with respect to the loss of grandfather
rights. The final amendments, therefore,
retain the provisions that apply the
change in circumstances language to
grandfathered interlocks.
With the exception noted below, the
agencies also have rejected general
objections to provisions within the
change in circumstances proposals.
Several commenters asserted that
defining change in circumstances to
include mergers, acquisitions,
consolidations, and branching would
penalize aggressive institutions by
forcing them to terminate valuable
management talent when expanding
their operations. The agencies note that
the Interlocks Act itself contemplates
that depository organizations must
choose between consummating certain
transactions and losing certain
management officials inasmuch as the
statutory prohibitions are keyed to asset
size and the location of offices. Neither
the Act nor the regulations prohibit
24387
depository organizations from
expanding by merger, acquisition,
consolidation, or branching.
The proposed regulations included, as
a change in circumstances that would
defeat grandfather rights, a significant
increase in the management
responsibilities of a management official
due to a change in position within an
interlocked depository organization.
Upon reconsideration, the agencies have
concluded that the inclusion of this
provision would have fostered
uncertainty with respect to management
officials of numerous depository
institutions and that the provision would
not be susceptible to consistent
enforcement at this time. The agencies
remain of the opinion, however, that the
language of section 206 of the Interlocks
Act could be correctly interpreted to
require termination of grandfathered
service due to any change in position
and reserve the authority to adopt this
interpretation in the future should it
appear appropriate to do so for purposes
of property administering the Interlocks
Act. It should be noted that deletion of
the provision from the final regulation
will not affect the manner in which the
prohibitions of the Interlocks Act apply
to management officials who shift
positions among affiliated depository
institutions.
A discussion of each type of change in
circumstances that will affect
grandfathered interlocks follows: (a)
A cquisitions, mergers, and
consolidations. Mergers, acquisitions, or
consolidations will terminate
grandfather rights for an interlocking
relationship in those situations where
one of the interlocked depository
organizations is merged with, acquires
or is acquired by, or is consolidated with
another depository organization which,
immediately prior to the transaction,
was an organization for which the
interlocking person could not have
served as a management official under
sections 203 or 204 of the Interlocks Act.
The language of this provision has been
simplified from that proposed in July
and does not effect any substantive
change. For the purposes of determining
the date on which the change in
circumstances occurs, a merger,
acquisition, or consolidation is
considered to have occurred upon
consummation. Operation of this
paragraph is illustrated by the following
example:
Director X’s service as a director of Bank A
and Bank D, both located in S M S A 1, is
grandfathered. Director Y’s service as a
director of Bank B and Bank C, both located
in SMSA 1, is also grandfathered. All of the
banks have assets of over $20 million but
under $500 million. BHC I, which is located in
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Federal Register / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
SMSA1 and owns Bank B, acquires Bank A
and merges it with Bank B.
Director X’s grandfather rights are defeated
for either of two reasons: (1) Under section
203, BHCI is a depository organization for
which X could not have served as a
management official immediately prior to the
acquisition, or (2) under section 203, Bank B
is a depository organization for which X
could not have served as a management
official immediately prior to the merger. Thus,
X would have to decide whether to continue
service with Bank A or Bank D.
Director Y’s grandfather rights with respect
to his service with Banks B and C are
defeated because, under section 203, Bank A
is a depository organization for which Y
could not have served immediately prior to
the merger. Y, thus, would have to decide
whether to continue service with Bank B or
Bank C.
In addition, a provision has been
added in the regulation issued by the
Federal Home Loan Bank Board that
affects the manner in which the
provision will be applied to acquisitions
by diversified savings and loan holding
companies. The provision states that, for
purposes of § 563f.6(a)(l)(i) of the
Federal Home Loan Bank Board's
regulation, the term "depository
organization” includes a nondepository
corporation that will become, as a result
of an acquisition of a savings and loan
association, a diversified savings and
loan holding company. The amendment
would terminate the grandfather rights
of a management official of a savings
and loan association that is acquired by
a nondepository corporation for which
the management official could not have
served prior to the transaction had the
corporation been a depository
organization. The addition reflects the
original intention of the Federal Home
Loan Bank Board that the grandfathered
rights of a management official of a
savings and loan association that is
acquired by a diversified savings and
loan holding company should be
terminated.
(b) Branching. Newly established
branches will terminate grandfather
rights in those situations where one of
the depository organizations involved in
the grandfathered interlocking
relationship, or its depository institution
affiliate, establishes an office in the
same community as the other depository
organization, or its depository institution
affiliate, where no such office existed
previously; or where both depository
organizations, or their depository
institution affiliates, establish an office
in a community or SMSA where neither
previously had an office. For example, if
a person’s service as a director of Bank
A and Bank B located in different cities
in the same SMSA is grandfathered and
Bank A establishes its first branch in a
city where Bank B already has a branch
or its main office, then the person’s
grandfathered rights would be
terminated. However, if Bank A and
Bank B each have a branch located in
the same city, then the banks may
establish additional branches in that
city (and adjacent and contiguous cities
thereto) without affecting the person’s
grandfather rights.
13. Changes in circumstances—nongrandfathered interlocks. The proposed
amendments identified several events
that would cause a non-grandfathered
management official interlock to become
prohibited. (A non-grandfathered
interlock is any interlock created after
November 10,1978, or an interlock that
was in violation of section 8 of the
Clayton Act on that date.) In the case of
certain involuntary events (for example,
material growth in asset size, change in
SMSA or community boundaries,
designation of new SMSA), the
organizations automatically would be
given fifteen months to conform to the
Interlocks Act unless the appropriate
agency or agencies acted to establish a
shorter period. In the event of certain
voluntary events (mergers, acquisitions,
consolidations, branching), the
organizations would be given urttil the
next annual shareholders’ meeting to
conform to the Interlocks Act. An
extension of up to fifteen months would
be available. It should be noted that the
listed events are not exhaustive of all
such events that may cause an interlock
to become prohibited.
The agencies have relied on the
rulemaking authority in section 209 of
the Interlocks Act to apply the change in
circumstances restrictions to nongrandfathered interlocks in addition to
grandfathered interlocks. Inasmuch as
the agencies recieved no unfavorable
comments concerning these provisions,
the agencies are retaining them in the
final amendments with a minor change
as noted in paragraph fourteen of the
discussion below.
14. Changes in circumstances—
compliance period. The proposed
amendments listed changes in
Circumstances which, if they occurred
after March 9,1979, would require the
termination of grandfathered
interlocking service. The proposed
amendments were based on section 206
of the Interlocks Act, which provides
that when a change in circumstances
causes a particular interlocking
relationship between two depository
organizations to become prohibited, the
agencies may allow the relationship to
continue for a period of time not
exceeding 15 months from the date on
which the relationship became
prohibited. The agencies proposed the
March 9 date because March 10,1979,
was the effective date of the Interlocks
Act and thus was the date upon which
the prohibitions of the Interlocks Act
became applicable to interlocking
relationships. A number of commenters
felt that the March 9 date was
inappropriate since the proposed
amendments were not published until
July 19,1979. The commenters asserted
that many depository organizations
would have structured various
transactions in a different manner had
they been aware of the exact nature of
the events that would terminate
grandfather rights. Some commenters
also asserted that publication of the
regulations at a time when many
depository organizations are holding
their annual meetings would cause
hardship for some organizations which
have already sent out notices to
shareholders nominating directors and
have annual meetings scheduled to
occur shortly. The commenters therefore
suggested that the agencies amend the
date after which changes in
circumstances would terminate
grandfather rights.
In response to these comments, the
agencies have amended the change in
circumstances provision to provide an
additional grace period for compliance
in cases where a change in circumstance
requiring termination of grandfather
rights occurred prior to the effective
date of these final amendments. The
agencies do not believe it is appropriate
to ignore changes that occurred prior to
the date of the proposed amendments,
as some commenters suggested, since to
do so would permit uninterrupted
service until 1988 contrary to the
prohibitions of the Interlocks Act. Thus,
an event falling within the categories of
changes in circumstances will be
considered a change that terminates
grandfather rights. However, if that
event occurred prior to the effective date
of the final amendments, the grace
period will commence on the effective
date of the amendments. The regulations
also grant a grace period to persons
whose grandfathered service was
prohibited on March 10,1979, due to a
change in circumstances occurring
between November 10,1978, and March
9,1979. Without such a grace period, the
Interlocks Act would necessitate
immediate termination of such service.
The provisions of the proposed
amendments concerning nongrandfathered interlocks that become
prohibited as a result of a change in
circumstances also have been rewritten
to apply the grace period to interlocking
service that becomes prohibited as a
Federal R egister / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
result of a change in circumstances. The
agencies are making the above changes
pursuant to their authority under section
209 of the Interlocks Act to permit
service that is otherwise prohibited.
The proposed amendments stated that
a person may continue to serve for a
certain period as a management official
of “both organizations” involved in the
prohibited interlocking relationship.
Since many interlocks involve more than
two organizations, the language has
been revised to make clear that the
person may continue to serve as a
management official of “all”
organizations involved in the prohibited
interlocking relationship.
Accordingly, 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
amend 12 CFR by revising Parts 212, 26,
348, 563f, and 711, respectively, to read
as follows:
FEDERAL RESERVE SYSTEM
12 CFR Part 212
[Regulation L— Docket No. R-0198J
PART 212— M ANAGEMENT OFFICIAL
INTERLOCKS
Sec.
212.1 Authority, purpose, and scope.
212.2 Definitions.
212.3 General prohibitions.
212.4 Permitted Interlocking Relationships.
212.5 Grandfathered Interlocking
Relationships.
212.6 Changes in circumstances.
212.7 Effect of Interlocks Act on Clayton
Act.
212.8 Enforcement.
Authority: Depository Institution
Management Interlocks Act ("Interlocks
Act”) (12 U.S.C. 3201 et seq.)
§ 212.1
Authority, purpose, and scope.
(a) A u th o rity . This part is issued
under the provisions of the Depository
Institution Management Interlocks Act
(“Interlocks Act”) (12 U.S.C. 3210 et
seq.).
(b) Purpose and scope. The general
purpose of the Interlocks Act and this
part is to foster competition by generally
prohibiting a management official of a
depository institution or depository
holding company from also serving as a
management official of another
depository institution or depository
holding company if the two
organizations (1) are not affiliated and
(2) are very large or are located in the
same local area. This part applies to
management officials of State member
banks, bank holding companies, and
their affiliates.
§ 212.2
Definitions.
For the purpose of this part, the
following definitions apply:
(a) “Adjacent cities, towns, or
villages” means cities, towns or villages
whose borders are within ten road miles
of each other at their closest points. The
property line of an office located in an
unincorporated city, town, or village is
regarded as the boundary line of that
city, town, or village for the purpose of
this definition.
(b) “Affiliate” has the meaning given
in section 202 of the Interlocks Act. For
purposes of section 202, an individual’s
shares include shares of members of his
or her immediate family. For the purpose
of section 202(3)(B) of the Interlocks Act,
an affiliate relationship based on
common ownership does not exist if the
appropriate Federal supervisory agency
or agencies determine, after giving the
affected persons the opportunity to
respond, that the asserted affiliation
appears to have been established in
order to avoid the prohibitions of the
Interlocks Act and does not represent a
true commonality of interest between
the depository organizations. In making
this determination, the agencies will
consider, among other things, whether a
person, including members of his or her
immediate family, whose shares are
necessary to constitute the group owns a
nominal percentage of the shares of one
of the organizations and the percentage
is substantially disproportionate with
that person’s ownership of shares in the
other organization. “Immediate family”
includes spouse, mother, father, child,
grandchild, sister, brother, or any of
their spouses, whether or not any of
their shares are held m trust.
(c) “Community” means city, town, or
village, or contiguous or adjacent cities,
towns, or villages.
(d) “Contiguous cities, towns, or
villages” means cities, towns, or villages
whose borders actually touch each
other.
(e) “Depository holding company”
means a bank holding company or a
savings and loan holding company (as
more fully defined in section 202 of the
Interlocks Act) having its principal
office located in the United States.
(f) “Depository institution” means a
commercial bank (including a private
bank), a savings bank, a trust company,
a savings and loan association, a
building and loan association, a
homestead association, a cooperative
bank, an industrial bank, or a credit
union, chartered in the United States
and having a principal office located in
the United States. Additionally, a United
24389
States office, including a branch or
agency, of a foreign commercial bank is
a “depository institution.”
(g) “Depository organization” means a
depository institution or a depository
holding company.
(h) "Management official” means an
employee or officer with management
functions (including a branch manager),
a director (including an advisory
director or honorary director), a trustee
of a business organization under the
control of trustees [e.g., a mutual savings
bank), or any person who has a
representative or nominee serving in
any such capacity. “Management
official” does not mean a person whose
management functions relate
exclusively to the business of retail
merchandising or manufacturing, for the
purposes of section 212.3(c) of this Part,
and does not mean a person whose
management functions relate principally
to the business outside the United States
of a foreign commercial bank.
“Management official” does not include
persons described in the provisos of
section 202(4) of the Interlocks Act.
(i) "Office” of a depository institution
means a principal office or a branch
office located in the United States, but
does not include a representative office
of a foreign commercial bank, an
electronic terminal, or a loan production
office. “Office” of a depository holding
company means its principal corporate
headquarters.
(j) “Person” means a natural person,
corporation, or other business.
(k) "Representative or nominee”
means a person who serves as a
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, and the appropriate Federal
supervisory agency or agencies will
determine, after giving the affected
persons an opportunity to respond,
whether a person is a “representative or
nominee." Certain relationships,
including family, employment or 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 by the
management official to another person.
For the purposes of this definition,
“person” shall include only natural
persons.
(l) “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 depository
holding company include the total assets
of its depository institution affiliates for
24390
Federal Register / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
the purposes of § 212.3(b) of this part,
and include the total assets of all of its
affiliates for purposes of § 212.3(c). Total
assets of a United States branch or
agency of a foreign commercial bank
means total assets of such branch or
agency itself exclusive of the assets of
the other offices of the foreign
commercial bank.
(m)
‘‘United States” means any State
of the United States, the District of
Columbia, any territory of the United
States, Puerto Rico, Guam, American
Samoa, or the Virgin Islands.
§212.3
General prohibitions.
(a) Community. 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) Offices of both are located
in the same community: (2) offices of
depository institution affiliates of both
are located in the same community: or
(3) an office of one of the depository
organizations is located in the same
community as an office of a depository
institution affiliate of the other.
(b) 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)
Offices of both are located in the same
Standard Metropolitan Statistical Area
(“SMSA”) and either has total assets of
$20 million or more; (2) offices of
depository institution affiliates of both
are located in the same SMSA and
either of the depository institution
affiliates has total assets of $20 million
or more; or (3) an office of one of the
depository organizations is located in
the same SMSA as an office of a
depository institution affiliate of the
other and either the depository
organization or the depository
institution affiliate has total assets of
$20 million or more.
(c) Major Assets. Without regard to
location, a management official of a
depository organization with total assets
exceeding $1 billion or a management
official of any affiliate of the greater
than $1 billion depository organization
may not serve at the same time as a
management official of a nonaffiliated
depository organization with total assets
exceeding $500 million or a management
official of any affiliate of the greater
than $500 million depository
organization.
§ 212.4 Permitted interlocking
relationships.
(a) Interlocking relationships
perm itted b y statute. The prohibitions of
§ 212.3 do not apply in the case of any
one or more of the following
organizations or their subsidiaries:
(1) A depository organization that
does not do business within the United
States except as an incident to its
activities outside the United States;
(2) A corporation operating under
section 25 or 25(a) of the Federal
Reserve Act (“Edge Corporations” and
“Agreement Corporations”);
(3) A depository organization that has
been placed formally in liquidation, or
that is in the hands of a receiver,
conservator, or other official exercising
a similar function;
(4) A credit union being served by a
management official of another credit
union;
(5) A State-chartered savings and loan
guaranty corporation; or
(6) A Federal Home Loan Bank or any
other bank organized solely for the
purpose of serving depository
institutions (commonly referred to as
“bankers’ banks”) or solely for the
purpose of providing securities clearing
services and services related thereto for
depository institutions, securities
companies, or both.
(b) Interlocking relationships
perm itted b y Board order. A
management official or a prospective
management official of a State member
bank, bank holding company, or affiliate
of either may apply for the Board’s prior
approval to enter into a relationship
involving another depository
organization that would otherwise be
prohibited under § 212.3, if the
relationship falls within any of the
classifications enumerated in this
paragraph. If the relationship involves a
depository organization subject to the
supervision of another Federal
supervisory agency as specified in
section 207 of the Interlocks Act, the
management official or prospective
management official must also obtain
the prior approval of that other agency.
(1) Organization in low income area;
m inority or w om en’ organization. A
s
person 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 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 appropriate Federal
supervisory agency or agencies
determine the relationship to be
necessary to provide management or
operating expertise to the organization
specified in Paragraph (b)(l)(i) or (ii) of
this; (B) no interlocking relationship
permitted by this paragraph 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 or agencies in any specific case.
(2) Newly-chartered organization. A
person may serve at the same time as a
management official of two or more
depository organizations if one of the
depository organizations (or an affiliate
thereof) is a newly-chartered
organization, subject to the following
conditions: (i) The appropriate Federal
supervisory agency or agencies
determine the relationship to be
necessary to provide management or
operating expertise to the newlychartered organization; (ii) no
interlocking relationship permitted by
this paragraph shall continue for more
than two years after the newlychartered organization commences; and
(iii) other conditions in addition to or in
lieu of the foregoing may be imposed by
the appropriate Federal supervisory
agency or agencies in any specific case.
(3) Conditions endangering safety or
soundness. A person may serve at the
same time as a management official of
two or more depository organizations
(or affiliates thereof) if the primary
Federal supervisory agency of one of the
depository organizations believes that
such depository organization faces
conditions endangering the
organization’s safety or soundness,
subject to the following conditions: (i)
The appropriate Federal supervisory
agency or agencies determine the
relationship to be necessary to provide
management or operating expertise to
the 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 or agencies in any specific case.
(4) Organization sponsoring credit
union. A management official of a
depository organization or its affiliate
may serve at the same time as a
management official of a Federallyinsured credit union that is sponsored
by the depository organization or its
affiliate primarily to serve employees of
the depository organization.
(5) Loss o f management officials due
to changes in circumstances. If a
depository organization experiences a
change in circumstances described in
paragraphs (a)(1), (b)(1), or (b)(2) of
§ 212.6, and the change requires the
termination of service at the depository
organization of 50 per cent or more of
the organization’s directors or of 50 per
cent or more of the total management
officials of the depository organization,
such management officials may continue
to serve in excess of the time periods
Federal R egister / Vol. 45, No. 70 / Wednesday, April 9, 1980 / Rules and Regulations
provided in paragraphs (a)(2), (b)(1), and
(b)(2) of § 212.6: Provided, That: (i) The
appropriate Federal supervisory agency
or agencies determines that the service
by such management officials is
necessary to provide management or
operating expertise; (ii) each
management official so affected agrees
to sever the prohibited interlocking
relationship no later than 30 months
after the change in circumstances; (iii)
the depository organization submits a
proposal for the orderly termination of
service by such management officials
over the time period provided; and (iv)
other conditions in addition to or in lieu
of the foregoing may be imposed by the
appropriate Federal supervisory agency
or agencies in any specific case.
§ 212.5 Grandfathered Interlocking
Relationships.
A person whose interlocking service
in a position as a management official of
two or more depository organizations
began prior to November 10,1978, and
was not immediately prior to that date
in violation of section 8 of the Clayton
Act (15 U.S.C. 19) is not prohibited from
continuing to serve in such interlocking
positions until November 10,1988,
except as provided in § 212.6(a).
§ 212.6
Changes in circumstances.
(a)(1) G randfathered interlocks. If a
person’s service as a management
official is grandfathered under § 212.5
the person must terminate such service
if the service becomes prohibited by the
occurrence of any of the following
changes in circumstances:
(1) A cquisitions, mergers, and
consolidations. One of the depository
organizations involved in the
interlocking relationship acquires or is
acquired by, is merged into or with, or is
consolidated with another depository
organization for which prior to the
transaction the person could not have
served as a management official under
§ 212.3; or
(ii) Branching. One of the depository
organizations involved in the
grandfathered interlocking relationship,
or its depository institution affiliate,
establishes an initial office in the same
community as the other depository
organization, or its depository institution
affiliate, or both of the depository
organizations, or their depository
institution affiliates, establish offices in
a community or SMSA where neither
previously had an office.
(2) Grace period. If a person’s
grandfathered service becomes
prohibited under paragraph (a)(1) of this
section, the person may continue to
serve as a management official of all
organizations involved in the prohibited
interlocking relationship through the
date of the next regularly scheduled
annual shareholders’ meeting of any of
the organizations involved, whichever
occurs last, unless the appropriate
Federal supervisory agency or agencies
take affirmative action in an individual
case to establish a shorter period.
However, the person may request the
appropriate agency or agencies to grant
an additional extension of time to
continue the interlocking relationship,
but the prohibited interlocking
relationship may not continue for more
than 15 months from the date of the
change in circumstances. If the change
in circumstances occurred prior to May
9.1980, the change will be considered to
have occurred on May 9,1980, for
purposes of this paragraph.
(b)(1) Non-grand fathered interlocks;
in vo lu n ta ry changes; grace period. If a
person’s service as a management
official is not grandfathered under
§ 212.5 and becomes prohibited as a
result of an increase in the asset size of
an organization due to natural growth,
or as a result of a change in SMSA or
community boundaries or the
designation of a new SMSA, the person
has 15 months from the date of the
change in circumstances to comply with
this part, unless the appropriate Federal
supervisory agency or agencies take
affirmative action in an individual case
to establish a shorter period. If the
change in circumstances occurred prior
to May 9,1980, the change will be
considered to have occurred on May 9,
1980 for purposes of this subparagraph.
(2) N on-grandfathered interlocks;
voluntary changes; grace period. If a
person’s service as a management
official is not grandfathered under
§ 212.5 and becomes prohibited as a
result of an acquisition, merger,
consolidation, or the establishment of an
office, the person may continue to serve
as a management official of all
organizations involved in the prohibited
interlock through the date of the next
regularly scheduled annual
shareholders’ meeting of any of the
organizations involved, whichever
occurs last, unless the appropriate
Federal supervisory agency or agencies
take affirmative action in an individual
case to establish a shorter period.
However, the person may request the
appropriate agency or agencies to grant
an additional extension of time to
continue the interlocking relationship,
but the prohibited interlocking
relationship may not continue for more
than 15 months from the date of the
change in circumstances. If the change
in circumstances occurred prior to May
9.1980, the change will be considered to
24391
have occurred on May 9,1980 for
purposes of this paragraph.
§ 212.7
Act
Effect of Interlocks Act on Clayton
The Board of Governors of the Federal
Reserve System regards the provisions
of the first three paragraphs of section 8
of the Clayton Act (15 U.S.C. 19) to have
been supplanted by the revised and
more comprehensive prohibitions on
management official interlocks between
depository organizations in the
Interlocks Act.
§ 212.8
Enforcement
The Board of Governors of the Federal
Reserve System administers and
enforces the Interlocks Act with respect
to State member banks, bank holding
companies, and their affiliates, and may
refer the case of a prohibited
interlocking relationship involving any
such organization, regardless of the
nature of any other organization
involved in the prohibited relationship,
to the Attorney General of the United
States to enforce compliance with the
Interlocks Act and this part. If an
affiliate of a State member bank or bank
holding company is primarily subject to
the regulation of another Federal
supervisory agency, then the Board does
not administer and enforce the
Interlocks Act with respect to that
affiliate.
Board o f Governors of the Federal Reserve
System, April 3,1980.
Griffith L. Garwood,
Deputy Secretary of the Board.
@FedFRASER