In the administration and enforcement of the Interlocks Act, the Federal Reserve Board has jurisdiction over state member banks, bank holding companies, and their nonbank affiliates; the Comptroller of the Currency has jurisdiction over national banks, banks located in the District of Columbia, and their subsidiaries; the Federal Deposit Insurance Corporation has jurisdiction over insured state nonmember banks and their subsidiaries; the Federal Home Loan Bank Board has jurisdiction over institutions insured by the Federal Savings and Loan Insurance Corporation, savings and loan holding companies, and their affiliates; and the National Credit Union Administration has jurisdiction over federally insured credit unions. The five agencies have adopted identical regulations with only technical variations necessary to accommodate the different organizations regulated by each agency. Each agency may refer prohibited interlocks involving a depository organization subject to its primary jurisdiction to the Attorney General of the United States to enforce compliance with the Interlocks Act and regulations issued thereunder.

A discussion of certain definitions set forth in Regulation L follows.

The Interlocks Act prohibits, among other things, management official interlocks between nonaffiliated depository organizations that are located in the same city, town, or village or in contiguous or adjacent cities, towns, or villages. Under the regulation, cities, towns, or villages are adjacent if they are within 10 road miles of each other. For example, 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.

The Interlocks Act permits management official interlocks between affiliates. Section 202(3)(B) of the Interlocks Act defines two depository organizations to be affiliates if the same person or group of persons beneficially own more than 50 percent of the voting shares of the two organizations. The agencies have defined the term “affiliate” in the regulation to prevent the creation of sham affiliations, by the exchange of a nominal number of voting shares of depository organizations. For example, depository organizations many attempt to create an affiliation under section 202(3)(B) of the act, an affiliation could be created between depository organizations if one person who owns 90 percent of the shares of Bank A exchanges one share of the stock of Bank A for one share of the stock of Bank B with another person who owns 90 percent of Bank B located in the same city. A Senate report accompanying a predecessor bill to the Interlocks Act (S. Rept. 323, 95th Cong., 1st sess., 1977, p. 15) recommends that “by rule the Federal Reserve should proscribe the switching of several shares of stock between individuals to defeat the ban which would otherwise obtain on interlocking management or directors between such institutions which are not truly commonly owned.”

The regulation is intended to subject only management officials servicing U.S. offices of foreign banks to the provisions of the Interlocks Act and not to prohibit certain interlocking relationships outside the United States between two foreign banks with subsidiary banks, branches, or agencies located in the United States. Only institutions chartered in the United States and having a principal office located in the United States, as well as U.S. offices of foreign commercial banks, are depository institutions for the purposes of the Interlocks Act.

The term “management official” is defined in section 202(4) of the Interlocks Act to mean an employee or officer with management functions, a director (including an advisory or honorary director), a trustee of a business organization under control of a trustee, or any person who has a representative or nominee serving in any such capacity.

The regulation defines the term “person” to include corporations, other businesses, and natural persons, but excludes corporations and other businesses from the definition of “representative or nominee.” As a result, corporations are not regarded as “management officials.” However, the Board reserves its authority pursuant to section 203 of the act to prohibit some or all of such indirect interlocking relationships in the future if new information indicates that such action is justified.

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 management official. Thus, a person may be regarded as a management official of a depository organization without actually serving as a management official. A representative or nominee is a person who has an express or implied duty to act on behalf of another. Under the regulations, family, employment, or agency relationships between two persons may be evidence of an express or implied obligation to carry out management functions on the other’s behalf. Similarly, the ability to elect a director and the exercise of that ability may be evidence of the elected official’s express or implied obligation to the elector. However, neither a relationship nor the election of a director will in itself create an express or implied obligation. Whether or not such an obligation exists will be determined case by case, with all relevant facts being considered; and the determination will be made only after the affected person or persons are given an opportunity to respond.

Example: 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, and if A and B are given an opportunity to respond and fail to present facts or arguments to refute these findings, the agencies may determine that B is a representative or nominee of A.

The total assets of a depository organization are relevant to the application of the prohibitions of the Interlocks Act. The agencies have defined the term “total assets” to mean total consolidated assets measured as of the close of the organization’s last fiscal year. Under the regulation, the total assets of most depository holding companies include the total assets of all of the individual holding company’s subsidiary affiliates; however, the total assets of diversified savings and loan holding companies and of bank holding companies that are exempt from the provisions of section 4 of the Bank Holding Company Act by virtue of section 4(d) of that act equal only the assets of their depository institution affiliates.

Regulation L generally restates the prohibitory sections of the Interlocks Act. The regulation, however, narrows the coverage of the act’s community and metropolitan-statistical area prohibitions by applying these prohibitions solely with regard to the location and asset size of depository institutions and by eliminating from consideration the location and asset size of depository holding companies. Thus, the regulation permits depository holding companies to interlock within the same community or relevant metropolitan statistical area unless the major-assets prohibition applies or unless the locations and sizes of the holding companies’ depository-institution affiliates trigger application of the community or metropolitan-statistical-area prohibitions.

Example 1: If Bank A is located in the same city as S&LB, then the same person may not serve as a management official of both Bank A and S&LB.

Example 2: If Bank A has a depository institution affiliate located in the same city as a depository institution affiliate of S&LB, then the same person may not serve as a management official of Bank A and S&LB.

Example 3: If Bank A is located in the same city as a depository institution affiliate of S&LB, then the same person may not serve as a management official of Bank A and S&LB.

Example 1: If Bank A, with total assets of $20 million or more, is located in the same relevant metropolitan statistical area as Bank B, then, regardless of the assets of Bank B, the same person may not serve as a management official of Bank A and Bank B.

Example 2: If Bank A has an affiliate Bank AA, with total assets of $20 million or more, located in a relevant metropolitan statistical area and Bank B has an affiliate Bank BB located in the same relevant metropolitan statistical area as Bank AA, then, regardless of the total assets of Banks A, B, and BB, the same person may not serve as a management official of Bank A and Bank B.

Example 3: If Bank A, with total assets of $20 million or more, is located in the same relevant metropolitan statistical area as a depository-institution affiliate of Bank B, then the same person may not serve as a management official of Bank A and Bank B.

Example 1: If Bank A has total assets exceeding $500 million and Bank B has total assets exceeding $1 billion, then the same person may not serve as a management official of Bank A and Bank B.

Example 2: If Bank A has an affiliate, Bank AA, with total assets exceeding $500 million and Bank B has total assets exceeding $1 billion, then the same person may not serve as a management official of Bank A and Bank B.

Example 3: If Bank A has an affiliate, Bank AA, with total assets exceeding $500 million and Bank B has an affiliate, Bank BB, with total assets exceeding $1 billion, then the same person may not serve as a management official of Bank A and Bank B.

Example 4: If a nondepository corporation has an affiliate, Bank Holding Company A, with total assets exceeding $500 million and Bank Holding Company B has total assets exceeding $1 billion, then the same person may not serve as a management official of the nondepository corporation and Bank Holding Company B or any affiliate of Bank Holding Company B.

Regulation L lists six types of organizations that are not subject to the prohibitions contained in sections 203 and 204 of the Interlocks Act. These exceptions are created by section 205 of the Interlocks Act, and their inclusion in the regulation is merely for the purpose of making the regulation comprehensive. The bankers’ bank exception makes clear that a bankers’ bank must have been organized solely, rather than merely specifically, for the purpose of serving depository institutions or solely for the purpose of providing clearing services and services related thereto for depository institutions, securities companies, or both.

Regulation L excepts certain organizations from the prohibitions contained in the Interlocks Act: organizations located in low-income areas, minority and women’s organizations, newly chartered organizations, organizations facing conditions endangering safety or soundness, organizations facing disruptive management loss, and organizations sponsoring credit unions. Exceptions for such organizations must be approved by the primary federal supervisory agency of the institution in need of the management assistance to be provided by the interlock.

Section 206 of the Interlocks Act grandfathers, for ten years, management official interlocks in existence on November 10, 1978, that were not in violation of section 8 of the Clayton Act (15 USC 19) immediately prior to that date. To be eligible for grandfather rights, a person’s interlocking service need not be otherwise prohibited under sections 203 and 204 of the Interlocks Act; it is sufficient that the interlock existed before November 10, 1978, and was not in violation of section 8 of the Clayton Act. The regulation grandfathers only a person’s service at two or more depository institutions; a person serving as a management official of only one depository institution or as a management official of only one depository organization and a nondepository corporation has no grandfather rights. The grandfather rights of a management official whose interlocking positions are grandfathered under section 206 of the Interlocks Act will not be terminated as a result of changes in circumstances such as a merger, acquisition, consolidation, or the establishment of an office.

Regulation L provides that a nongrandfathered interlock (an interlock created after November 10, 1978, or an interlock in violation of section 8 of the Clayton Act on that date) must be terminated if a change in circumstances causes the management official’s interlocking service to become prohibited. Such changes in circumstances include, but are not limited to, an increase in assets size of an organization due to natural growth; a change in relevant metropolitan statistical area or community boundaries; an acquisition, merger, or consolidation; the establishment of a new office; or a disaffiliation.

The first three paragraphs of section 8 of the Clayton Act (15 USC 19) generally prohibit employee and director interlocks between member banks and other commercial banks. The Board has concluded that the provisions of the first three paragraphs of section 8 of the Clayton Act have been supplanted by the Interlock Act’s revised and more comprehensive prohibitions on management official interlocks between depository organizations.