After spinning off its savings and loan association subsidiary, a company requested confirmation that by terminating its status as a “depository holding company” within the meaning of section 202(2) of the Depository Institution Management Interlocks Act (Interlocks Act) and section 212.2(e) of Regulation L, its management officials were no longer required to terminate their management official positions with various depository institutions. The Federal Home Loan Bank Board had confirmed that the company was released from registration as a savings and loan holding company within the meaning of that agency’s regulations. Staff concluded that the company was no longer subject to the requirements of the Interlocks Act or the Board’s Regulation L. STAFF OP. of Nov. 1, 1982.

The Depository Institution Management Interlocks Act and Regulation L do not specifically include industrial loan companies in their definition of depository institutions. To determine the applicability of management interlock restrictions to institutions not clearly subject thereto, the Board generally looks at whether the institution is engaged in taking deposits. California industrial loan companies should be regarded as depository institutions for purposes of the Interlocks Act since they offer investment certificates that are the functional equivalent of savings deposits; make consumer, commercial, and real estate loans; and are examined annually for safety and soundness. STAFF OP. of March 24, 1983.

An individual has been a director of a bank holding company and of a savings and loan association since before November 10, 1978. His position is therefore grandfathered under section 206 of the Interlocks Act. The holding company’s subsidiary bank is located in the same SMSA as the savings and loan association, and the individual involved now seeks permission to serve as director of the subsidiary bank, which has assets of over $20 million. The interlock would be prohibited unless the individual’s grandfather rights are interpreted to extend to his service at the subsidiary bank. The individual involved is also president and a trustee of the bank holding company. He already exercises significant management responsibilities with respect to the subsidiary bank, which comprises over 98 percent of the holding company’s assets. He is a member of the bank holding company’s finance committee, which has direct oversight of the bank. Two of the bank holding company’s directors also are directors of the bank. Based on these facts, it is staff’s opinion that the individual’s election as a director of the subsidiary bank would not violate the Interlocks Act. STAFF OP. of July 22, 1980.

Authority: Interlocks Act § 206, 12 USC 3205; 12 CFR 212.

A management official of a bank holding company and its subsidiary bank, which are depository institutions with assets exceeding $1 billion each, is also a director of a savings and loan holding company, whose savings and loan subsidiary has assets exceeding $500 million, and a director of one of its nonbanking subsidiaries. The management official became a director of the bank holding company in 1969, of the bank in 1964, of the savings and loan holding company in 1979, and of its nondepository institution subsidiary before November 10, 1978. The director’s interlock between the bank holding company and the bank on the one hand, and the savings and loan holding company on the other violates section 204 of the Interlocks Act, which prohibits interlocks between depository institutions or their affiliates if their assets exceed $1 billion and $500 million, respectively, and the interlock is not grandfathered as existing prior to November 10, 1978.

A director of a bank subsidiary of a bank holding company and a mutual savings and loan association has been a director of both financial institutions since before November 10, 1978. Both depository organizations have offices in the same city. The interlocking relationship thus is grandfathered under the Interlocks Act. The question is whether the director’s grandfather rights would be terminated if the savings and loan association converts from a mutual association to a stock association. Such a conversion is essentially a change in corporate form that Congress did not intend to affect grandfather rights under the Depository Institution Management Interlocks Act. STAFF OP. of Oct. 17, 1980.

An individual’s service as a management official of a bank and another depository institution is grandfathered under the Depository Institution Management Interlocks Act and Regulation L. The individual wants to know whether he may also serve as director of the bank’s parent holding company (“corporation”).

The Depository Institution Management Interlocks Act was enacted on November 10, 1978, and superseded section 8 of the Clayton Act. It included a grandfather clause allowing a management official whose service was not in violation of section 8 of the Clayton Act at the time of enactment to continue to serve in that position for 10 years. On March 22, 1978, the Board granted an exception to the prohibitions of section 8 of the Clayton Act based on the Regulation L provision providing for exceptions in the case of member banks located in low-income or economically depressed areas. The exception was for a period of no more than five years. It was asked whether the interlock permitted under the five-year exception could be regarded as having been grandfathered by the Interlocks Act.

For several years, a director of a bank holding company and its subsidiary bank was director of a mutual savings and loan association (“S &L”). At age 65, the director resigned from the board of directors of the S&L and was designated a director emeritus by the board of the S& L. As a director emeritus, he (a) is permitted to attend board of directors meetings and to speak on any matter before the meetings (the director does not, however, actually attend any of the meetings); (b) is prohibited from voting on any matter before the meetings; and (c) receives the same director’s fee as regular directors. The question is whether the director’s position with the S&L would be analogous to that of an honorary director, which would make him a management official subject to the prohibitions of the Depository Institution Management Interlocks Act. The director’s position with the S&L is similar to that of an honorary director. Even though he does not in fact attend meetings of the S&L’s board of directors, the fact that he may do so renders his position comparable to that of an honorary director. The fact that the director may not vote at the S&L’s directors’ meetings does not make him any less an honorary director since honorary directors frequently are excluded from voting at directors’ meetings. Accordingly, in view of the broad definition of the term “management official” in section 202(4) of the Interlocks Act to include as management officials honorary as well as advisory directors, the director would be a management official for purposes of the act.

A member of a law firm is a director of two depository organizations: X, with more than $1 billion in assets, and Y, with more than $500 million in assets. The director was a director of both X and Y before November 10, 1978. On June 30, 1980, the director resigned from the board of directors of Y. After the director’s resignation, one of his partners in the law firm (“partner”), was elected to the board of directors of Y. The director and partner do not have any agreement, express or implied, to act for, or on behalf of, each other or the law firm with respect to management responsibilities over Y. The question is whether the director and partner may serve simultaneously as directors of X and Y without violating the prohibitions of the Depository Institution Management Interlocks Act.

A director of a diversified manufacturing company, which is also a bank holding company by virtue of section 4(d) of the Bank Holding Company Act, seeks to become a director of other unaffiliated depository institutions. The company’s bank subsidiary has assets of less than $47 million, representing 3 percent of the company’s assets and less than 1 percent of commercial bank deposits in the relevant banking market. If the director’s management functions relate exclusively to the business of retailing, merchandising, or manufacturing for the company and in no way relate to the subsidiary bank, the director would not be a management official for the purposes of section 204 of the Interlocks Act. Section 212.2(h) of Regulation L defines “management official” to exclude persons whose management functions relate exclusively to the business of retail merchandising or manufacturing. To ensure compliance with this exemption, the company’s board of directors should provide a resolution stating that the director in question does not or will not exercise management functions with respect to the subsidiary bank and does not attend any meeting where affairs of the subsidiary bank are discussed or voted upon. The director in question should provide affidavits representing the same. A management official of another depository organization could become a director of the company on the same conditions. STAFF OP. of Oct. 17, 1980 and March 10, 1981.

Authority: Interlocks Act § 204, 12 USC 3203; BHCA § 4(d), 12 USC 1843(d); 12 CFR 212(h).

The question has arisen whether a director of a service corporation wholly owned by a savings and loan association should be considered an honorary or advisory director, and thus a management official, of the parent savings and loan association for purposes of the Depository Institution Management Interlocks Act.

The Depository Institution Management Interlocks Act of 1978 defines “management official” to include advisory directors. However, if these officials do not have the power to attend or vote at board of directors meetings or otherwise influence depository institutions’ management or operating policies, then they are not covered by the act. Consequently, a member of an advisory board who advises a depository institution about the general economic and political aspects of world events but who has no power to vote on any issues affecting the institution or to attend meetings of the board of directors would not be within the purview of the act. STAFF OP. of Dec. 14, 1981.

The Depository Institution Management Interlocks Act and Regulation L prohibit a management official of a depository holding company from serving as a management official of any unaffiliated depository holding company if offices of depository institution affiliates of both are located in the same or adjacent communities. The definition of “management official” in Regulation L excludes “a person whose management functions relate exclusively to the business of retail merchandising or manufacturing.” This exclusion is limited to only those persons whose management functions relate exclusively to the business of retail merchandising or manufacturing and was not intended to be available to persons whose functions relate to financial-service activities. STAFF OP. of Dec. 9, 1985.

Authority: Interlocks Act, 12 USC 3201 et seq.; 12 CFR 212.2(h)(2)(i).

A bank holding company wants to nominate the vice chairman of a nonbanking company for election to its board of directors. The nonbanking company is wholly owned by the chairman and chief executive officer of that company, who is also a director of a bank holding company that has a $20 million depository institution affiliate located in the same metropolitan statistical area as a $20 million depository institution affiliate of the holding company. The chairman of the nonbanking company also owns 5.5 percent of the common stock of the holding company and is that company’s largest single shareholder. Because the chairman would be prevented by the Interlocks Act from serving on the board of directors of the holding company, the holding company wants to nominate the vice chairman of his company.

The Board has concluded that the appointment of vice presidents of two New York City banks as vice president and director of a third New York City bank qualifies as an exception to section 8 of the Clayton Act and Regulation L prohibitions against interlocking relationships because (a) the third bank is in Harlem, a “low-income or economically depressed area,” (b) the Board has determined that the appointment is necessary and desirable to provide management or operating expertise, and (c) the interlocking relationship will continue for less than five years. BD. RULING of May 11, 1979.

Section 205 of the recently amended Depository Institution Management Interlocks Act excepts from that act’s prohibitions, for five years, interlocking service by a management official of a depository institution or a depository holding company that is closed or is in danger of closing and is acquired by another depository institution or depository holding company.

The Board decided not to disapprove a diversified savings and loan holding company’s request to allow a director to continue to serve on the board of directors of a non-depository institution subsidiary of the diversified company while also serving on the board of directors of a bank holding company. Section 205 of the Depository Institution Management Interlocks Act provides for a limited exception from the prohibitions of the act for diversified savings and loan holding companies under certain circumstances.

A bank holding company director served as president of a trust company. The holding company asserted that because the trust company’s charter prohibited it from conducting a commercial banking business, the only competition between the trust company and the holding company’s subsidiary bank would be for trust activities, which was not the type of competition the Depository Institution Management Interlocks Act was meant to foster.