Management Official Interlocks

SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of

Governors of the Federal Reserve System (Board), Federal Deposit

Insurance Corporation (FDIC), and Office of Thrift Supervision (OTS)

(collectively, the agencies) propose to revise their rules regarding

management interlocks. The proposal conforms the interlocks rules to

recent statutory changes, modernizes and clarifies the rules, and

reduces unnecessary regulatory burdens where feasible, consistent with

statutory requirements.

DATES: Comments must be received by February 27, 1996.

ADDRESSES: Comments should be directed to:

OCC: Office of the Comptroller of the Currency, Communications

Division, 250 E Street, SW, Washington, DC 20219, Attention: Docket No.

95-31. Comments will be available for public inspection and

photocopying at the same location. In addition, comments may be sent by

facsimile transmission to FAX number (202) 874-5274 or by internet mail

to [email protected]

Board: William W. Wiles, Secretary, Board of Governors of the

Federal Reserve System, Docket No. R-0907, 20th Street and Constitution

Avenue, NW, Washington, DC 20551. Comments addressed to Mr. Wiles may

also be delivered to the Board's mail room between 8:45 a.m. and 5:15

p.m., and to the security control room outside of those hours. Both the

mail room and control room are accessible from the courtyard entrance

on 20th Street between Constitution Avenue and C Street, NW. Comments

may be inspected in room MP-500 between 9:00 a.m. and 5:00 p.m., except

as provided in Sec. 261.8 of the Board's Rules Regarding Availability

of Information, 12 CFR 261.8.

FDIC: Jerry L. Langley, Executive Secretary, Attention: Room F-402,

Federal Deposit Insurance Corporation, 550 17th Street, NW, Washington,

DC 20429. Comments may be delivered to room F-400, 1776 F Street, NW,

Washington, DC 20429, on business days between 8:30 a.m. and 5:00 p.m.

or sent by facsimile transmission to FAX number 202/898-3838. Internet:

[email protected] Comments will be available for inspection and

photocopying in room 7118, 550 17th Street, NW, Washington, DC 20429,

between 8:30 a.m. and 5:00 p.m. on business days.

OTS: Chief, Dissemination Branch, Records Management and

Information Policy, Office of Thrift Supervision, 1700 G Street, NW,

Washington, DC 20552, Attention Docket No. 95-204. These submissions

may be hand delivered to 1700 G Street, NW, from 9:00 A.M. to 5:00 P.M.

on business days; they may be sent by facsimile transmission to FAX

number (202) 906-7755. Comments over 25 pages in length should be sent

to FAX number (202) 906-6956. Comments will be available for inspection

at 1700 G Street, NW, from 9:00 A.M. until 4:00 P.M. on business days.

FOR FURTHER INFORMATION CONTACT:

OCC: Sue E. Auerbach, Senior Attorney, Bank Activities and

Structure Division (202) 874-5300; Emily R. McNaughton, National Bank

Examiner, Credit & Management Policy (202) 874-5170; Jackie Durham,

Senior Licensing Policy Analyst (202) 874-5060; or Mark J. Tenhundfeld,

Senior Attorney, Legislative and Regulatory Activities (202) 874-5090.

Board: Thomas M. Corsi, Senior Attorney (202/452-3275), or Tina

Woo, Attorney (202/452-3890), Legal Division, Board of Governors of the

Federal Reserve System. For the hearing impaired only,

Telecommunication Device for Deaf (TTD), Dorothea Thompson (202/452-

3544), Board of Governors of the Federal Reserve System, 20th and C

Streets, NW, Washington DC 20551.

FDIC: Curtis Vaughn, Examination Specialist, Division of

Supervision, (202) 898-6759; or Mark Mellon, Counsel, Regulation and

Legislation Section, Legal Division, (202) 898-3854, Federal Deposit

Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.

OTS: David Bristol, Senior Attorney, Business Transactions

Division, (202) 906-6461; or Donna Miller, Program Manager, Supervision

Policy, (202) 906-7488.

SUPPLEMENTARY INFORMATION:

Background

Section 303 of the Riegle Community Development and Regulatory

Improvement Act of 1994 (CDRI Act)

Section 303(a) of the CDRI Act (12 U.S.C. 4803(a)) requires the

OCC, OTS, Board, and FDIC to review their regulations in order to

streamline and modify the regulations to improve efficiency, reduce

unnecessary costs, and eliminate unwarranted constraints on credit

availability. Section 303(a) also requires the agencies to work jointly

to make uniform all regulations and guidelines implementing common

statutory or supervisory policies. The agencies have reviewed their

respective management interlocks regulation with these purposes in mind

and, as is explained in greater detail in the text that follows,

propose to amend the regulations in ways designed to meet the goals of

section 303(a).\1\

\1\ The National Credit Union Administration has participated in

the interagency effort to revise the management interlocks

regulations and intends to publish a separate Notice of Proposed

Rulemaking revising 12 CFR part 711 in the near future.

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Summary of Statutory Changes

The CDRI Act amended the Depository Institution Management

Interlocks Act (12 U.S.C. 3201-3208) (Interlocks Act) by removing the

agencies' broad authority to exempt otherwise impermissible interlocks

and replacing it with the authority to exempt interlocks under more

narrow circumstances. The CDRI Act also required a depository

organization with a ``grandfathered'' interlock to apply for an

extension of the grandfather period if the organization wanted to keep

the interlock in place.\2\

\2\ The agencies completed their review of requests for

extensions by March 23, 1995, as directed by the statute. Therefore,

the provision regarding extending the grandfather period is moot for

purposes of this regulation.

[[Page 67425]]

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After the changes made by the CDRI Act, a person subject to the

Interlocks Act's restrictions seeking an exemption from those

restrictions must qualify either for a ``regulatory standards''

exemption (the Regulatory Standards exemption) or an exemption under a

``management official consignment program'' (the Management Consignment

exemption). An applicant seeking a Regulatory Standards exemption must

submit a board resolution certifying that no other candidate from the

relevant community has the necessary expertise to serve as a management

official, is willing to serve, and is not otherwise prohibited by the

Interlocks Act from serving. Before granting the exemption request, the

appropriate agency must find that the individual is critical to the

institution's safe and sound operations, that the interlock will not

produce an anticompetitive effect, and that the management official

meets any additional requirements imposed by the agency. Under the

Management Consignment exemption, the appropriate agency may permit an

interlock that otherwise would be prohibited by the Interlocks Act if

the agency determines that the interlock would improve the provision of

credit to low- and moderate-income areas, increase the competitive

position of a minority- or woman-owned institution, or strengthen the

management of a newly chartered institution or an institution that is

in an unsafe or unsound condition. (See text following ``Management

Consignment exemption'' in this Preamble for a discussion regarding

interlocks involving newly chartered institutions or institutions that

are in an unsafe or unsound condition.)

The proposal reflects these statutory changes, and streamlines and

clarifies the interlocks regulations in various respects. These changes

are discussed in the text that follows. The agencies invite comments on

all aspects of this proposal.

Discussion

The following is a section-by-section discussion of the proposed

revisions.

Authority, Purpose, and Scope

This section in the agencies' current regulations identifies the

Interlocks Act as the statutory authority for the management interlocks

regulation. It also states that the purpose of the rules governing

management interlocks is to foster competition between unaffiliated

institutions. Finally, this section currently identifies the types of

institutions to which each agency's regulation applies.

The proposed rule restates these provisions and, in the OCC

proposed rule, uses the term ``District bank'' to describe banks

operating under the Code of Laws of the District of Columbia. (See

definition of ``District bank'' at proposed Sec. 26.2(k).)

Definitions

Each of the agencies' current regulations sets forth definitions of

key terms used in the regulation.

The proposed regulations change some of the current definitions. A

discussion of the substantive differences between the current rules and

proposals follows.

Anticompetitive Effect

The current regulations neither use nor define the term

``anticompetitive effect.''

The proposed regulations define the term to mean ``a monopoly or

substantial lessening of competition.'' This term is used in the

Regulatory Standards exemption. Under that exemption, the appropriate

agency may approve a request for an exemption to the Interlocks Act if,

among other things, the agency finds that continuation of service by

the management official does not produce an anticompetitive effect with

respect to the affected institution. The statute does not define the

term ``anticompetitive effect,'' nor does the legislative history to

the CDRI Act point to a particular definition.

The context of the Regulatory Standards exemption suggests,

however, that the agencies should apply the term ``anticompetitive

effect'' in a manner that permits interlocks that present no

substantial lessening of competition. By prohibiting an interlock that

would result in a monopoly or substantial lessening of competition, the

proposed definition preserves the free flow of credit and other banking

services that the Interlocks Act is designed to protect. Another

benefit of the proposed definition is that it is familiar to the

banking industry, given that it is derived from the Bank Merger Act (12

U.S.C. 1828(c)). This enables the agencies to accomplish the

legislative purpose of the Interlocks Act without imposing unnecessary

regulatory burdens.

Area Median Income

The current regulations do not use the term ``area median income,''

and, therefore, do not define this term.

The proposed regulations define ``area median income'' as the

median family income for the metropolitan statistical area (MSA) in

which an institution is located or the statewide nonmetropolitan median

family income if an institution is located outside an MSA. This term is

used in the definition of ``low- and moderate-income areas,'' which in

turn is used in the implementation of the Management Consignment

exemption.

Contiguous or Adjacent Cities, Towns, or Villages

The current regulations define ``adjacent cities, towns, or

villages'' as cities, towns, or villages whose borders are within 10

road miles from each other. They also define ``contiguous cities,

towns, or villages'' as cities, towns, or villages whose borders touch.

The statute and regulations apply these terms to prohibit interlocks

involving small institutions that are located in contiguous or adjacent

cities, towns, or villages.

The proposed regulations combine these two definitions, given that

contiguous cities, towns, or villages necessarily are within 10 miles

of each other.

Critical

The current regulations neither use nor define ``critical.''

The proposed regulations define the term in connection with the

Regulatory Standards exemption. Under that exemption, the appropriate

agency must find that a proposed management official is critical to the

safe and sound operations of the affected institution. 12 U.S.C.

3207(b)(2)(A). Neither the statute nor its legislative history define

``critical.''

The agencies are concerned that a narrow interpretation of this

term would nullify the Regulatory Standards exemption. If someone were

``critical'' to the safe and sound operations of an institution only if

the institution would fail but for the service of the person in

question, the exemption would have little relevance because the

standard would be practically impossible to meet. Given that Congress

clearly intended for the Regulatory Standards exemption to permit

interlocks under some circumstances, the question thus becomes how to

define those circumstances.

This proposal addresses the issue by stating that the agencies will

consider a person to be critical to a depository organization if the

person will play an important role in helping the institution either

address current problems or maintain safe and sound operations going

forward. The agencies believe that this approach is consistent with the

[[Page 67426]]

legislative intent by insuring that only persons of demonstrated

expertise and importance to the institution will be allowed to serve

pursuant to a Regulatory Standards exemption.

Low- and Moderate-Income Areas

The current regulations permit interlocks under certain

circumstances involving a depository organization located ``in a low

income or other economically depressed area.'' However, the current

rules do not define ``low income'' or ``economically depressed.''

Section 209(c)(1)(A) of the Interlocks Act (12 U.S.C.

3207(c)(1)(A)) authorizes the appropriate agency to permit interlocks

pursuant to the Management Consignment exemption if the agency

determines that the proposed service would ``improve the provision of

credit to low- and moderate-income areas.'' The proposed regulations

define ``low- and moderate-income areas'' as areas where the median

family income is less than 100 percent of the area median income. This

definition is consistent with Title I, Subtitle A of the CDRI Act (the

Community Development Banking and Financial Institutions Act of 1994)

(12 U.S.C. 4701-4718), which, like the Management Consignment exemption

affecting institutions in low- and moderate-income areas, is intended

to assist the flow of credit into economically depressed areas. Section

103(17) of the CDRI Act (12 U.S.C. 4702(17)) defines ``low income'' to

mean not more than 80 percent of the area median income. The agencies

believe that Congress, by using the term ``low- and moderate-income''

in the Management Consignment exemption, intended for that term to

apply to an area where the median family income exceeds 80 percent of

the median income for the area. The agencies have selected 100 percent

of the area median income as the cutoff for defining ``low- and

moderate-income areas'' because they believe that a higher threshold

would permit interlocks that would not improve the provision of credit

to low- and moderate-income areas.

Management Official

The current regulations define ``management official'' to include

an employee or officer ``with management functions'' (including a

branch manager), a director, a trustee of an organization under the

control of trustees, or any person who has a representative or nominee

serving in such capacity. The definition excludes (1) a person whose

management functions relate either exclusively to the business of

retail merchandising or manufacturing or principally to business

outside the United States of a foreign commercial bank and (2) a person

excluded by section 202(4) of the Interlocks Act (12 U.S.C. 3201(4)).

The proposed regulations adopt the definition of ``management

official'' set forth in the current rules, except that the phrase ``an

employee or officer with management functions'' is removed. It is

replaced by the term ``senior executive officer'' as defined by each of

the agencies in their regulations pertaining to the prior notice of

changes in senior executive officers, which implement section 32 of the

Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1831i) as added by

section 914 of the Financial Institutions Reform, Recovery, and

Enforcement Act of 1989 (FIRREA).

The agencies are proposing this change to eliminate the uncertainty

and attendant compliance burden created by the ambiguous term

``management functions.'' The proposals incorporate specific

illustrative examples of positions at depository organizations that

will be treated as senior executive officers. See 12 CFR 5.51(c)(3)

(OCC); 12 CFR 225.71(a) (Board); 12 CFR 303.14(a)(3) (FDIC); and 12 CFR

574.9(a)(2) (OTS). The agencies believe that these definitions will

allow depository organizations to identify impermissible interlocks

with greater certainty and thus will enhance compliance. The agencies

request comment on the advisability of defining ``management official''

by using ``senior executive officer'' rather than ``employee or officer

with management functions.''

The current definition of ``management official'' exempts those

individuals whose management functions relate to retail merchandising

or manufacturing. Stated another way, the current exemption applies to

a category of persons whose responsibilities are unrelated to the

business of a deposit-taking institution.

The agencies specifically ask commenters to address whether the

agencies should exempt a broader category of management officials whose

duties are unrelated to the provision of financial services by a

depository institution or depository holding company, and if so, how

the agencies should define that category of excluded officials.

Relevant Metropolitan Statistical Area (RMSA)

The current regulations define ``relevant metropolitan statistical

area'' as an MSA, a primary MSA, or a consolidated MSA that is not

comprised of designated primary MSAs as defined by the Office of

Management and Budget (OMB). This definition is derived from section

203(1) of the Interlocks Act (12 U.S.C. 3202(1)).

The proposed regulations define ``relevant metropolitan statistical

area (RMSA)'' as an MSA, a primary MSA, or a consolidated MSA that is

not comprised of designated primary MSAs, to the extent that the OMB

defines and applies these terms. This change reflects the fact that the

OMB defines ``consolidated MSA'' to include two or more primary MSAs.

Given that consolidated MSAs, by the OMB's definition, are comprised of

primary MSAs, the reference to consolidated MSAs in the Interlocks Act

and the agencies' regulations is inappropriate. The proposed change

enables the agencies to implement the statute in a way that complies

with both the spirit and the letter of the Interlocks Act.

Representative or Nominee

The current regulations define ``representative or nominee'' as 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. The current definition goes on to state

that the determination of whether someone is a representative or

nominee depends on the facts of a particular case and that certain

relationships (such as family, employment, and so on) may evidence an

express or implied obligation to act.

The proposed regulations also define ``representative or nominee''

as someone who serves as a management official and has an obligation to

act on behalf of someone else. The proposed definition deletes the rest

of the current definition, however, and inserts in lieu thereof a

statement that the appropriate agency will find that someone has an

obligation to act on behalf of someone else only if there is an

agreement (express or implied) to act on behalf of another. The

agencies propose this change to clarify that the determination that a

representative or nominee situation exists will depend on whether there

is a basis to conclude that an agreement exists to act on someone's

behalf. The agencies note that the current definition provides specific

guidance for determining when a representative or nominee relationship

might be found to exist, and request comment on whether the current

definition, the proposed definition, or another definition is

preferable.

Prohibitions

The current regulations prohibit interlocks in the following three

[[Page 67427]]

instances. First, no two unaffiliated depository organizations may have

an interlock if they (or their depository institution affiliates) have

depository institution offices in the same community. Second, a

depository organization may not have an interlock with any unaffiliated

depository organization if either depository organization has assets

exceeding $20 million and the depository organizations (or depository

institution affiliates of either) have depository institution offices

in the same RMSA.3 Third, if a depository organization has total

assets exceeding $1 billion, it (and its affiliates) may not have an

interlock with any depository organization with total assets exceeding

$500 million (or affiliate thereof), regardless of location.

3 A community as that term is defined in the proposals is

smaller than an RMSA. There may be several communities in one RMSA.

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The proposed regulations amend the rules as they apply to

institutions with assets of less than $20 million to better conform to

the purposes of the Interlocks Act. Whereas the current rules prohibit

interlocks in an RMSA if one of the organizations has total assets of

$20 million or more, the proposed rules would apply the RMSA-wide

prohibition only if both organizations have total assets of $20 million

or more. Interlocks within a community involving unaffiliated

depository organizations would continue to be prohibited.

The agencies believe that this proposed change is consistent with

both the language and the intent of the Interlocks Act. While the

statute uses the plural ``depository institutions'' in section 203(1)

of the Interlocks Act (12 U.S.C. 3202(1)), in context, neither the

statute nor its legislative history compels the conclusion that the

interlock must involve two institutions with less than $20 million in

assets before the less restrictive prohibition applies.

The Interlocks Act seeks to prohibit interlocks that could enable

two institutions to engage in anticompetitive behavior. However, an

institution with total assets of less than $20 million is likely to

derive most of its business from the community in which it is located

and is unlikely to compete with institutions that do not have offices

in that community. Therefore, interlocks involving one institution with

assets under $20 million and another institution with assets of at

least $20 million not in the same community are not likely to lead to

the anticompetitive conduct that the Interlocks Act is designed to

prohibit.

The agencies believe, moreover, that the proposed change will

promote rather than inhibit competition. Expanding the pool of

managerial talent for institutions with assets under $20 million could

enhance the ability of smaller institutions to compete by improving the

management of these institutions.

The proposed regulations reflect the change affecting depository

organizations with less than $20 million in total assets. They also set

forth the prohibition against interlocks involving large depository

organizations but do not change the substance of that prohibition. The

proposed regulations change the style of all three prohibitions in

order to make them easier to understand.

The agencies invite comment on any aspect of this proposed section.

The agencies specifically seek comment on whether the proposed

reinterpretation of 12 U.S.C. 3202(1) might result in anticompetitive

effects and thus run counter to the legislative intent of the

Interlocks Act. For example, could the proposed change enable a large

bank to engage in anticompetitive conduct by creating interlocks with

one or more smaller depository institutions located in the same RMSA

but not in the same community (a ``hub and spokes'' interlock)? The

agencies also seek comment on whether the final rule should

specifically address such situations.

Interlocking Relationships Expressly Permitted by Statute

The current regulations restate most of the exemptions that are

expressly permitted by the Interlocks Act and list those exemptions

that the agencies have permitted by regulation pursuant to the broad

exemptive authority that applied before the enactment of the CDRI Act.

The current regulations also address interlocks involving diversified

savings and loan holding companies.

The proposed regulations state the exemptions found in 12 U.S.C.

3204(1)-(8).4 The proposals reorder the exemptions set forth in

the current regulations in order to conform the list of exemptions to

the list set forth in the Interlocks Act.

4 The Interlocks Act contains an additional exemption for

savings associations and savings and loan holding companies that

have issued stock in connection with a qualified stock issuance

pursuant to section 10(q) of the Home Owners' Loan Act (12 U.S.C.

1467a(q)). See 12 U.S.C. 3204(9). The OTS therefore proposes to

continue to list an additional exemption in its interlocks

regulation which the other agencies do not list. Another exemption

provides for interlocks as a result of an emergency acquisition of a

savings association authorized in accordance with section 13(k) of

the Federal Deposit Insurance Act (12 U.S.C. 1823(k)) if the FDIC

has given its approval to the interlock. The FDIC therefore proposes

to continue to list an additional exemption in its management

interlocks regulation which the other agencies do not list.

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Regulatory Standards Exemption

The current regulations contain no Regulatory Standards exemption.

The proposed regulations set forth the standards that a depository

organization must satisfy in order to obtain a Regulatory Standards

exemption. The proposal implements the requirement regarding

certification by allowing a depository organization's board of

directors (or the organizers of a depository organization that is being

formed) to certify to the appropriate agency that no other qualified

candidates have been found after undertaking reasonable efforts to

locate other qualified candidates who are not prohibited from service

under the Interlocks Act. If read narrowly, the Interlocks Act could

require a depository organization to evaluate every person in a given

locale that might be qualified and interested. This would create a

requirement that, in practice, would be impossible to satisfy. Given

that Congress would not have included an exemption that would have no

practical application, the agencies believe that the proposed

``reasonableness'' standard is consistent with the legislative intent.

The proposed regulations also set forth presumptions that the

agencies will apply when reviewing an application for a Regulatory

Standards exemption. First, each agency will presume that an interlock

will not have an anticompetitive effect if it involves institutions

that, if merged, would not trigger a challenge from the agencies on

competitive grounds. This presumption is unavailable, however, for

interlocks subject to the Major Assets prohibition.

Generally, the agencies will not object to a merger on competitive

grounds if the post-merger Herfindahl-Hirschman Index (HHI) for the

market is less than 1800 and the merger increases the HHI by 200 points

or less. This presumption will enable applicants to avoid the

unnecessary burden of submitting a competitive analysis in several

instances. The agencies have found this HHI benchmark to be a useful

guide to evaluating anticompetitive effects of interlocks.5

However, simply analyzing the HHI for the two organizations in a

potential interlock does not take into

[[Page 67428]]

account any anticompetitive effects that might stem from a previously

existing interlock. Accordingly, the agencies are requesting comments

as to how other interlocks involving depository organizations should be

viewed in applying this presumption.

\5\ See, e.g., the OCC's Bank Merger Competitive Analysis Screen

(OCC Advisory Letter 95-4, July 18, 1995); Department of Justice

Merger Guidelines (49 FR 26823, June 29, 1984) (applied by the

Board); FDIC Statement of Policy: Bank Merger Transactions (54 FR

39045, Sept. 22, 1989).

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The second presumption to be applied by the agencies is that a

person is critical to an institution's safe and sound operations if the

agencies also approved that individual under section 914 of FIRREA and

the institution in question either was a newly chartered institution,

failed to meet minimum capital requirements, or otherwise was in a

``troubled condition'' as defined in the reviewing agency's section 914

regulation at the time the section 914 filing was approved.6

\6\ This presumption also applies to individuals whose service

as a senior executive officer is approved by the OCC pursuant to the

standard conditions imposed on newly chartered national banks and to

individuals whose service as a management official is approved by

the FDIC as a condition of a grant of deposit insurance prior to the

opening of the depository institution.

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The agencies invite comment on the utility of the proposed

presumptions and on whether other presumptions also should apply.

The proposed regulations also address the duration of an interlock

permitted under the Regulatory Standards exemption. The statute does

not require that these interlocks terminate. In light of this open-

ended grant of authority, the agencies are not proposing a specific

term for a permitted exemption. Instead, the agencies may require an

institution to terminate the interlock if an agency determines that the

management official in question either no longer is critical to the

safe and sound operations of the affected organization or that

continued service will produce an anticompetitive effect. The agencies

will provide affected organizations an opportunity to submit

information before they make a final determination to require

termination of an interlock.

Grandfathered Interlocking Relationships--Removed

The current regulations restate the grandfather provisions set

forth in section 206 of the Interlocks Act (12 U.S.C. 3205). Section

338(a) of the CDRI Act authorizes the agencies to extend a

grandfathered interlock for an additional five years if the management

official in question satisfied the statutory criteria for obtaining an

extension.

The proposed regulations remove the sections addressing the

grandfather exemption because they are unnecessary and redundant in

light of the statute. Individuals who wished to extend their exemption

already have applied for and received an exemption if they met the

statutory criteria. The grandfathered exemptions will expire on

November 10, 1998, unless Congress amends the Interlocks Act again to

provide another opportunity for an extension.

Management Consignment Exemption

The current regulations set forth a number of instances in which

the agencies may permit an exemption to the Interlocks Act. However,

the statutory provisions authorizing the agencies to grant exemptions

have been amended, thereby requiring that the current regulations be

amended as well. The Management Consignment exemption set forth in

section 209(c) of the Interlocks Act (12 U.S.C. 3207(c)) is modelled

after certain exemptions that appear in the agencies' current

regulations.

The proposed regulations implement the Management Consignment

exemption, and restate the statutory criteria, with three

clarifications. First, the proposed rules state that the agencies

consider a ``newly chartered institution'' to be an institution that

has been chartered for less than two years at the time it files an

application for exemption. This standard is consistent with certain

other banking agency thresholds for determining when an institution is

considered newly chartered (see, e.g., 12 CFR 5.51(d), 225.72(a)(1);

303.14(b)).

Second, the proposal clarifies that the exemption available for

``minority- and women-owned institutions'' is available for an

institution that is owned either by minorities or women. In noting the

types of exemptions that the Federal banking agencies have approved,

the House Conference Report to the CDRI Act (H.R. Conf. Rep. No. 652,

103d Cong., 2d Sess. 181 (1994)) (Conference Report) states that the

types of institutions that have received exemptions include those that

are ``owned by women or minorities.'' These exemptions ultimately were

codified in the Interlocks Act. Accordingly, the agencies have

concluded that Congress intended the Management Consignment exemption

to assist institutions owned by women and/or by minorities, but did not

intend to require the institution to be owned by both.

Third, the proposal permits an interlock if the interlock would

strengthen the management of either a newly chartered institution or an

institution that is in an unsafe or unsound condition. Section

209(c)(1)(C) of the Interlocks Act (12 U.S.C. 3207(c)(1)(C)) permits an

exemption if the interlock would ``strengthen the management of newly

chartered institutions that are in an unsafe or unsound condition.''

However, this provision contains what appears on its face to be an

error, given that an exemption limited to situations involving newly

chartered institutions that also are in an unsafe and unsound condition

would have no practical utility. The chartering agencies do not approve

an application for a bank or thrift charter unless the applicant

seeking a charter can demonstrate that the proposed new financial

institution will operate in a safe and sound manner for the foreseeable

future. While there may be an extraordinary instance where a newly

chartered institution immediately experiences unforeseen problems so

severe that they threaten the safety and soundness of that institution,

there is nothing in the legislative history to suggest that Congress

intended to limit the Management Consignment exemption to such rare

instances.

Moreover, the legislative history of the CDRI Act suggests that the

agencies are to apply the Management Consignment exemption in cases

involving either newly chartered institutions or institutions that are

in an unsafe or unsound condition. The Conference Report notes that the

agencies have used their exemptive authority to grant exemptions in

limited cases where institutions ``are particularly in need of

management guidance and expertise to operate in a safe and sound

manner.'' Id. The Conference Report goes on to state that ``Examples of

exceptions permissible under an agency management official consignment

program include improving the provision of credit to low- and moderate-

income areas, increasing the competitive position of minority- and

women-owned institutions, and strengthening he [sic] management of

newly chartered institutions or institutions that are in an unsafe or

unsound condition.'' Id. at 182 (emphasis added).

Finally, Congress used the exemptions in the agencies' current

rules as the model for the Management Consignment exemption. See id. at

181-182. These exemptions distinguish newly chartered institutions from

institutions that are in an unsafe or unsound condition. The reference

in the CDRI Act's legislative history to the current regulatory

exemptions suggests that Congress intended to codify these exemptions.

For these reasons, the agencies propose to permit exemptions

pursuant

[[Page 67429]]

to the Management Consignment exemption if the management official will

strengthen either a newly chartered institution or an institution that

is in an unsafe or unsound condition. Commenters are requested to

address this approach.

The proposals set forth two presumptions that the agencies will

apply in connection with an application for an exemption under the

Management Consignment exemption. First, the agencies will presume that

an individual is capable of strengthening the management of an

institution that has been chartered for less than two years if the

reviewing agency approved the individual to serve as a management

official of that institution pursuant to section 914 of FIRREA.7

Second, the agencies will presume that an individual is capable of

strengthening the management of an institution that is in an unsafe or

unsound condition if the reviewing agency approved the individual to

serve under section 914 as a management official of that institution at

a time when the institution was not in compliance with minimum capital

requirements or otherwise was in a ``troubled condition.''

\7\ This presumption also applies to an individual whose service

as a senior executive officer of a national bank is approved

pursuant to the standard conditions imposed by the OCC on newly

chartered national banks and to individuals whose service as a

management official is approved by the FDIC as a condition of a

grant of deposit insurance prior to the opening of the depository

institution.

---------------------------------------------------------------------------

The agencies believe that presumptions of suitability are less

valid when applied to the other Management Consignment exemptions

because there is no reason to conclude that a management official

approved under section 914 necessarily will improve the flow of credit

to low- and moderate-income areas or increase the competitive position

of minority- or woman-owned institutions. No presumption regarding

effects on competition is proposed, given that this is not a factor to

be considered by the agencies when reviewing an application for a

Management Consignment exemption.

The agencies seek comment on the utility of the proposed

presumptions and on whether additional presumptions should apply as

well.

The proposed regulations set forth the limits on the duration of a

Management Consignment exemption. The Interlocks Act limits a

Management Consignment exemption to two years, with a possible

extension for up to an additional two years if the applicant satisfies

at least one of the criteria for obtaining a Management Consignment

exemption. The proposed regulations implement this limitation by

requiring interested parties to submit an application for an extension

at least 30 days before the expiration of the initial term of the

exemption and by clarifying that the presumptions that apply to initial

applications also apply to extension applications.

Change in Circumstances

The current regulations provide a 15-month grace period for

nongrandfathered interlocks that become impermissible due to a change

in circumstances. This period may be shortened by the agencies under

appropriate circumstances.

The proposed regulations revise the style of this section in the

current regulations but not its substance.

The agencies seek comment on the proposed continued availability of

a grace period.

Enforcement

The current regulations set forth the jurisdiction of the agencies

that enforce the Interlocks Act.

The proposed regulations simplify the style of this section in the

current regulations but not its substance.

Small Market Share Exemption

In 1994, the OCC, Board, and FDIC published separate notices of

proposed rulemaking seeking comment on a proposed exemption for

interlocks involving institutions that, on a combined basis, would

control less than 20 percent of the deposits in a community or relevant

MSA. These agencies published small market share exemption proposals

pursuant to the broad exemptive authority vested in the agencies prior

to the enactment of the CDRI Act. However, as previously noted, the

CDRI Act amended the agencies' broad rulemaking authority by

authorizing the agencies to grant exemptions only in more narrow

circumstances. In light of this statutory change, the three agencies

believe that it would be inappropriate to adopt the proposed small

market share exemption. The FDIC already has withdrawn its proposal

regarding the small market share exemption (see 60 FR 7139 (February 7,

1995)). The OCC and Board hereby withdraw their respective proposals.

Paperwork Reduction Act

The OCC, FDIC, and OTS invite comment on:

(1) Whether the proposed collection of information contained in

this notice of proposed rulemaking is necessary for the proper

performance of each agency's functions, including whether the

information has practical utility;

(2) The accuracy of each agency's estimate of the burden of the

proposed information collection;

(3) Ways to enhance the quality, utility, and clarity of the

information to be collected; and

(4) Ways to minimize the burden of the information collection on

respondents, including through the use of automated collection

techniques or other forms of information technology.

Respondents are not required to respond to this collection of

information unless it displays a currently valid OMB control number.

OCC: The collection of information requirements contained in this

notice of proposed rulemaking have been submitted to the Office of

Management and Budget for review in accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collections

of information should be sent to the Office of Management and Budget,

Paperwork Reduction Project (1557-0196), Washington, DC 20503, with

copies to the Legislative and Regulatory Activities Division (1557-

0196), Office of the Comptroller of the Currency, 250 E Street, SW,

Washington, DC 20219.

The collection of information requirements in this proposed rule

are found in 12 CFR 26.4(h)(1)(i), 26.5(a)(1), 26.5(a)(2), 26.6(a), and

26.6(c). This information is required to evidence compliance with the

requirements of the Interlocks Act by national banks and District

banks. The likely respondents are national banks and District banks.

Estimated average annual burden hours per respondent: 3 hours.

Estimated number of respondents: 100.

Start-up costs to respondents: None.

Board: In accordance with section 3506 of the Paperwork Reduction

Act of 1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board

reviewed the proposed rule under the authority delegated to the Board

by the Office of Management and Budget. Comments on the collections of

information should be sent to the Office of Management and Budget,

Paperwork Reduction Project (7100-0046, 7100-0134, 7100-0171, 7100-

0266), Washington, DC 20503, with copies of such comments to be sent to

Mary M. McLaughlin, Federal Reserve Board Clearance Officer, Division

of Research and Statistics, Mail Stop 97, Board of Governors of the

Federal Reserve System, Washington, DC 20551.

The collection of information requirements in this proposed

rulemaking are found in 12 CFR

[[Page 67430]]

212.4(h)(1)(i), 212.5(a)(1), 212.5(a)(2), 212.6(a), and 212.6(c). This

information is required to evidence compliance with the requirements of

the Interlocks Act as amended by section 338 of the CDRI Act. The

respondents are state member banks and subsidiary depository

institutions of bank holding companies.

Currently, information on management official interlocks is

gathered as a part of the following applications: membership in the

Federal Reserve System (OMB No. 7100-0046); state member bank mergers

(OMB No. 7100-0266); changes in bank control (OMB No. 7100-0134); and

bank holding company acquisitions of depository institutions (OMB No.

7100-0171). The estimated portion of burden for each application that

is attributable to management interlocks averages 4 hours, and the

burden ranges from as much as 6 hours to as little as 0.5 hours. It is

estimated that 822 applications are filed annually, with an estimate of

3,288 hours of annual burden. Based on an hourly cost of $20, the

annual cost to the public is estimated to be $65,760. The Federal

Reserve believes that the proposed rule will have a minimal effect on

respondent burden.

The Federal Reserve may not conduct or sponsor, and an organization

is not required to respond to, these information collections unless

they display currently valid OMB control numbers.

No issues of confidentiality under the provisions of the Freedom of

Information Act normally arise for the applications.

Comments are invited on: (1) Whether the proposed revised

collections of information are necessary for the proper performance of

the Federal Reserve's functions, including whether the information has

practical utility; (2) the accuracy of the Federal Reserve's estimate

of the burden of the proposed information collections, including the

cost of compliance; (3) ways to enhance the quality, utility, and

clarity of the information to be collected; and (4) ways to minimize

the burden of information collection on respondents, including through

the use of automated collection techniques or other forms of

information technology.

FDIC: The collections of information contained in this notice of

proposed rulemaking have been submitted to the Office of Management and

Budget for review in accordance with the Paperwork Reduction Act of

1995 (44 U.S.C. 3507(d)). Comments on the collections of information

should be sent to the Office of Management and Budget, Paperwork

Reduction Project (3604-0092), Washington, DC 20503, with copies of

such comments to be sent to Steven F. Hanft, Office of the Executive

Secretary, Room F-453, Federal Deposit Insurance Corporation, 550 17th

Street, NW., Washington, DC 20429.

The collection of information requirements in this proposed

regulation are found in 12 CFR 348.4(i)(1)(i), 348.5(a)(1),

348.5(a)(2), 348.6(a), and 348.6(c). This information is required to

evidence compliance with the requirements of the Interlocks Act as

amended by section 338 of the CDRI Act. The likely respondents are

insured nonmember banks.

Estimated number of respondents: 6 applicants per year.

Estimated average annual burden per respondent: 4 hours.

Estimated annual frequency of recordkeeping: Not applicable (one-

time application).

Estimated total annual recordkeeping burden: 24 hours.

OTS: The collection of information requirements contained in this

notice of proposed rulemaking have been submitted to the Office of

Management and Budget for review in accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection

of information should be sent to the Office of Management and Budget,

Paperwork Reduction Project (1550), Washington, DC 20503, with copies

to the Business Transactions Division (1550), Office of Thrift

Supervision, 1700 G Street, NW, Washington, DC.

The collection of information requirements in this proposed rule

are found in 12 CFR 563f.4(h)(1)(i), 563f.5(a)(1), 563f.5(a)(2),

563f.6(a), and 563f.6(c). This information is required to evidence

compliance with the requirements of the Interlocks Act by savings

associations. The likely respondents are national savings associations.

Estimated average annual burden hours per respondent: 4 hours.

Estimated number of respondents: 8.

Start-up costs to respondents: None.

Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA)

(5 U.S.C. 605(b)), the initial regulatory flexibility analysis

otherwise required under section 603 of the RFA (5 U.S.C. 603) is not

required if the head of the agency certifies that the rule will not

have a significant economic impact on a substantial number of small

entities and the agency publishes such certification and a succinct

statement explaining the reasons for such certification in the Federal

Register along with its general notice of proposed rulemaking.

Pursuant to section 605(b) of the RFA, the agencies hereby certify

that this proposed rule will not have a significant economic impact on

a substantial number of small entities. The agencies expect that this

proposal will not (1) have significant secondary or incidental effects

on a substantial number of small entities or (2) create any additional

burden on small entities. Moreover, the changes to the exemptions

available are required by the Interlocks Act. Accordingly, a regulatory

flexibility analysis is not required.

Executive Order 12866

OCC and OTS: The OCC and OTS have determined that this proposal is

not a significant regulatory action under Executive Order 12866.

Unfunded Mandates Act of 1995

OCC and OTS: Section 202 of the Unfunded Mandates Act of 1995

(Unfunded Mandates Act) requires that an agency prepare a budgetary

impact statement before promulgating a proposed rule likely to result

in a Federal mandate that may result in the annual expenditure of $100

million or more in any one year by State, local, and tribal

governments, in the aggregate, or by the private sector. If a budgetary

impact statement is required, section 205 of the Unfunded Mandates Act

requires an agency to identify and consider a reasonable number of

alternatives before promulgating a proposal.

The OCC and OTS have determined that the proposed rule will not

result in expenditures by State, local, and tribal governments, or by

the private sector, of more than $100 million in any one year.

Accordingly, neither the OCC nor the OTS has prepared a budgetary

impact statement or specifically addressed the regulatory alternatives

considered.

List of Subjects

12 CFR Part 26

Antitrust, Banks, banking, Holding companies, Management official

interlocks, National banks.

12 CFR Part 212

Antitrust, Banks, banking, Holding companies, Management official

interlocks.

12 CFR Part 348

Antitrust, Banks, banking, Holding companies.

[[Page 67431]]

12 CFR Part 563f

Antitrust, Holding companies, Management official interlocks,

Savings associations.

Office of the Comptroller of the Currency

12 CFR CHAPTER I

Authority and Issuance

For the reasons set out in the joint preamble, the OCC proposes to

revise part 26 of chapter I of title 12 of the Code of Federal

Regulations to read as follows:

PART 26--MANAGEMENT OFFICIAL INTERLOCKS

Sec.

26.1 Authority, purpose, and scope.

26.2 Definitions.

26.3 Prohibitions.

26.4 Interlocking relationships permitted by statute.

26.5 Regulatory Standards exemption.

26.6 Management Consignment exemption.

26.7 Change in circumstances.

26.8 Enforcement.

Authority: 12 U.S.C. 93a and 3201-3208.

Sec. 26.1 Authority, purpose, and scope.

(a) Authority. This part is issued under the provisions of the

Depository Institution Management Interlocks Act (Interlocks Act) (12

U.S.C. 3201 et seq.), as amended, and the OCC's general rulemaking

authority in 12 U.S.C. 93a.

(b) Purpose. The purpose of the Interlocks Act and this part is to

foster competition by generally prohibiting a management official from

serving two nonaffiliated depository organizations in situations where

the management interlock likely would have an anticompetitive effect.

(c) Scope. This part applies to management officials of national

banks, District banks, and affiliates of either.

Sec. 26.2 Definitions.

For purposes of this part, the following definitions apply:

(a) Affiliate. (1) The term affiliate has the meaning given in

section 202 of the Interlocks Act (12 U.S.C. 3201). For purposes of

that section, shares held by an individual include shares held by

members of his or her immediate family. ``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.

(2) For purposes of section 202(3)(B) of the Interlocks Act (12

U.S.C. 3201(3)(B)), an affiliate relationship involving a national bank

based on common ownership does not exist if the OCC determines, after

giving the affected persons the opportunity to respond, that the

asserted affiliation was 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 OCC considers, 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.

(b) Anticompetitive effect means a monopoly or substantial

lessening of competition.

(c) Area median income means:

(1) The median family income for the metropolitan statistical area

(MSA), if a depository organization is located in an MSA; or

(2) The statewide nonmetropolitan median family income, if a

depository organization is located outside an MSA.

(d) Community means city, town, or village, and contiguous or

adjacent cities, towns, or villages.

(e) Contiguous or adjacent cities, towns, or villages means cities,

towns, or villages whose borders touch each other or whose borders are

within 10 road miles of each other at their closest points. The

property line of an office located in an unincorporated city, town, or

village is the boundary line of that city, town, or village for the

purpose of this definition.

(f) Critical means important to restoring or maintaining a

depository organization's safe and sound operations.

(g) 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 (12 U.S.C. 3201)) having its principal office

located in the United States.

(h) 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

under the laws of the United States and having a principal office

located in the United States. Additionally, a United States office,

including a branch or agency, of a foreign commercial bank is a

depository institution.

(i) Depository institution affiliate means a depository institution

that is an affiliate of a depository organization.

(j) Depository organization means a depository institution or a

depository holding company.

(k) District bank means any State bank operating under the Code of

Law of the District of Columbia.

(l) Low- and moderate-income areas means areas where the median

family income is less than 100 percent of the area median income.

(m) Management official. (1) The term management official includes:

(i) A director;

(ii) An advisory or honorary director of a depository institution

with total assets of $100 million or more;

(iii) A senior executive officer as that term is defined in 12 CFR

5.51(c)(3);

(iv) A branch manager;

(v) A trustee of a depository organization under the control of

trustees; and

(vi) Any person who has a representative or nominee serving in any

of the capacities in this paragraph (m)(1).

(2) The term management official does not include:

(i) A person whose management functions relate exclusively to the

business of retail merchandising or manufacturing;

(ii) A person whose management functions relate principally to the

business outside the United States of a foreign commercial bank; or

(iii) A person described in the provisos of section 202(4) of the

Interlocks Act (12 U.S.C. 3201(4)) (referring to an officer of a State-

chartered savings bank, cooperative bank, or trust company that neither

makes real estate mortgage loans nor accepts savings).

(n) Office means a principal or branch office of a depository

institution located in the United States. Office does not include a

representative office of a foreign commercial bank, an electronic

terminal, or a loan production office.

(o) Person means a natural person, corporation, or other business

entity.

(p) Relevant metropolitan statistical area (RMSA) means an MSA, a

primary MSA, or a consolidated MSA that is not comprised of designated

primary MSAs to the extent that these terms are defined and applied by

the Office of Management and Budget.

(q) Representative or nominee means a natural person who serves as

a management official and has an obligation to act on behalf of another

person with respect to management responsibilities. The OCC will find

that a person has an obligation to act on

[[Page 67432]]

behalf of another person only if the first person has an agreement,

express or implied, to act on behalf of the second person with respect

to management responsibilities. The OCC will determine, after giving

the affected persons an opportunity to respond, whether a person is a

representative or nominee.

(r) Total assets. (1) The term total assets means assets measured

on a consolidated basis and reported in the most recent fiscal year-end

Consolidated Report of Condition and Income.

(2) The term total assets does not include:

(i) Assets of a diversified savings and loan holding company as

defined by section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C.

1467a(a)(1)(F)) other than the assets of its depository institution

affiliate;

(ii) Assets of a bank holding company that is exempt from the

prohibitions of section 4 of the Bank Holding Company Act of 1956

pursuant to an order issued under section 4(d) of that Act (12 U.S.C.

1843(d)) other than the assets of its depository institution affiliate;

or

(iii) Assets of offices of a foreign commercial bank other than the

assets of its United States branch or agency.

(s) United States means the United States of America, any State or

territory of the United States of America, the District of Columbia,

Puerto Rico, Guam, American Samoa, and the Virgin Islands.

Sec. 26.3 Prohibitions.

(a) Community. A management official of a depository organization

may not serve at the same time as a management official of an

unaffiliated depository organization if the depository organizations in

question (or a depository institution affiliate thereof) have offices

in the same community.

(b) RMSA. A management official of a depository organization may

not serve at the same time as a management official of an unaffiliated

depository organization if the depository organizations in question (or

a depository institution affiliate thereof) have offices in the same

RMSA and each depository organization has total assets of $20 million

or more.

(c) Major assets. A management official of a depository

organization with total assets exceeding $1 billion (or any affiliate

thereof) may not serve at the same time as a management official of an

unaffiliated depository organization with total assets exceeding $500

million (or any affiliate thereof), regardless of the location of the

two depository organizations.

Sec. 26.4 Interlocking relationships permitted by statute.

The prohibitions of Sec. 26.3 do not apply in the case of any one

or more of the following organizations or to a subsidiary thereof:

(a) A depository organization that has been placed formally in

liquidation, or which is in the hands of a receiver, conservator, or

other official exercising a similar function;

(b) A corporation operating under section 25 or section 25A of the

Federal Reserve Act (12 U.S.C. 601 et seq. and 12 U.S.C. 611 et seq.,

respectively) (Edge Corporations and Agreement Corporations);

(c) A credit union being served by a management official of another

credit union;

(d) A depository organization that does not do business within the

United States except as an incident to its activities outside the

United States;

(e) A State-chartered savings and loan guaranty corporation;

(f) A Federal Home Loan Bank or any other bank organized solely to

serve depository institutions (a bankers' bank) or solely for the

purpose of providing securities clearing services and services related

thereto for depository institutions and securities companies;

(g) A depository organization that is closed or is in danger of

closing as determined by the appropriate Federal depository

institutions regulatory agency and is acquired by another depository

organization. This exemption lasts for five years, beginning on the

date the depository organization is acquired; and

(h)(1) A diversified savings and loan holding company (as defined

in section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C.

1467a(a)(1)(F)) with respect to the service of a director of such

company who also is a director of an unaffiliated depository

organization if:

(i) Both the diversified savings and loan holding company and the

unaffiliated depository organization notify their appropriate Federal

depository institutions regulatory agency at least 60 days before the

dual service is proposed to begin; and

(ii) The appropriate regulatory agency does not disapprove the dual

service before the end of the 60-day period.

(2) The OCC may disapprove a notice of proposed service if it finds

that:

(i) The service cannot be structured or limited so as to preclude

an anticompetitive effect in financial services in any part of the

United States;

(ii) The service would lead to substantial conflicts of interest or

unsafe or unsound practices; or

(iii) The notificant failed to furnish all the information required

by the OCC.

(3) The OCC may require that any interlock permitted under this

paragraph (h) be terminated if a change in circumstances occurs with

respect to one of the interlocked depository organizations that would

have provided a basis for disapproval of the interlock during the

notice period.

Sec. 26.5 Regulatory Standards exemption.

(a) Criteria. The OCC may permit an interlock that otherwise would

be prohibited by the Interlocks Act and Sec. 26.3 if:

(1) The board of directors of the depository organization (or the

organizers of a depository organization being formed) that seeks the

exemption provides a resolution to the OCC certifying that the

organization, after the exercise of reasonable efforts, is unable to

locate any other candidate from the community or RMSA, as appropriate,

who:

(i) Possesses the level of expertise required by the depository

organization and who is not prohibited from service by the Interlocks

Act; and

(ii) Is willing to serve as a management official; and

(2) The OCC, after reviewing an application submitted by the

depository organization seeking the exemption, determines that:

(i) The management official is critical to the safe and sound

operations of the affected depository organization; and

(ii) Service by the management official will not produce an

anticompetitive effect with respect to the depository organization.

(b) Presumptions. The OCC applies the following presumptions when

reviewing any application for a Regulatory Standards exemption:

(1) An interlock has no anticompetitive effect if it involves

depository institutions that, if merged, would not cause the post-

merger Herfindahl-Hirschman Index (HHI) to exceed 1800 and would not

cause the HHI to increase by more than 200 points. This presumption

does not apply to institutions subject to the major assets prohibition

of Sec. 26.3(c).

(2) A proposed management official is critical to the safe and

sound operations of a depository institution if that official is

approved by the OCC to serve as a director or senior executive officer

of that institution pursuant to 12 CFR 5.51 or pursuant to conditions

imposed on a newly chartered national bank and the institution had

operated for less than two years, was not in compliance with minimum

capital requirements, or otherwise was in a ``troubled condition''

[[Page 67433]]

as defined in 12 CFR 5.51 at the time the service under that section

was approved.

(c) Duration of interlock. An interlock permitted under this

section may continue until the OCC notifies the affected organizations

otherwise. The OCC may require a national bank to terminate any

interlock permitted under this section if the OCC concludes, after

giving the affected persons the opportunity to respond, that the

determinations under paragraph (a)(2) of this section no longer may be

made.

Sec. 26.6 Management Consignment exemption.

(a) Criteria. The OCC may permit an interlock that otherwise would

be prohibited by the Interlocks Act and Sec. 26.3 if the OCC, after

reviewing an application submitted by the depository organization

seeking an exemption, determines that the interlock would:

(1) Improve the provision of credit to low- and moderate-income

areas;

(2) Increase the competitive position of a minority- or woman-owned

depository organization;

(3) Strengthen the management of a depository institution that has

been chartered for less than two years at the time an application is

filed under this part; or

(4) Strengthen the management of a depository institution that is

in an unsafe or unsound condition as determined by the OCC on a case-

by-case basis.

(b) Presumptions. The OCC applies the following presumptions when

reviewing any application for a Management Consignment exemption:

(1) A proposed management official is capable of strengthening the

management of a depository institution described in paragraph (a)(3) of

this section if that official is approved by the OCC to serve as a

director or senior executive officer of that institution pursuant to 12

CFR 5.51 or pursuant to conditions imposed on a newly chartered

national bank and the institution had operated for less than two years

at the time the service under 12 CFR 5.51 was approved; and

(2) A proposed management official is capable of strengthening the

management of a depository institution described in paragraph (a)(4) of

this section if that official is approved by the OCC to serve as a

director or senior executive officer of that institution pursuant to 12

CFR 5.51 and the institution was not in compliance with minimum capital

requirements or otherwise was in a ``troubled condition'' as defined

under 12 CFR 5.51 at the time service under that section was approved.

(c) Duration of interlock. An interlock granted under this section

may continue for a period of two years from the date of approval. The

OCC may extend this period for one additional two-year period if the

depository organization applies for an extension at least 30 days

before the current exemption expires and satisfies one of the criteria

specified in paragraph 26.6(a) of this section. The provisions set

forth in paragraph (b) of this section also apply to applications for

extensions.

Sec. 26.7 Change in circumstances.

(a) Termination. A management official shall terminate his or her

service or apply for an exemption to the Interlocks Act if a change in

circumstances causes the service to become prohibited under that Act. A

change in circumstances may include, but is not limited to, an increase

in asset size of an organization, a change in the delineation of the

RMSA or community, the establishment of an office, an acquisition, a

merger, a consolidation, or any reorganization of the ownership

structure of a depository organization that causes a previously

permissible interlock to become prohibited.

(b) Transition period. A management official described in paragraph

(a) of this section may continue to serve the depository institution

involved in the interlock for 15 months following the date of the

change in circumstances. The OCC may shorten this period under

appropriate circumstances.

Sec. 26.8 Enforcement.

Except as noted in this section, the OCC administers and enforces

the Interlocks Act with respect to national banks, District banks, and

affiliates of either, and may refer any case of a prohibited

interlocking relationship involving these institutions to the Attorney

General of the United States to enforce compliance with the Interlocks

Act and this part. If an affiliate of a national bank or a District

bank is subject to the primary regulation of another Federal depository

organization supervisory agency, then the OCC does not administer and

enforce the Interlocks Act with respect to that affiliate.

Dated: November 27, 1998.

Eugene A. Ludwig,

Comptroller of the Currency.

Federal Reserve System

12 CFR CHAPTER II

Authority and Issuance

For the reasons set forth in the joint preamble, the Board proposes

to revise part 212 of chapter II of title 12 of the Code of Federal

Regulations to read as follows:

PART 212--MANAGEMENT OFFICIAL INTERLOCKS

Sec.

212.1 Authority, purpose, and scope.

212.2 Definitions.

212.3 Prohibitions.

212.4 Interlocking relationships permitted by statute.

212.5 Regulatory Standards exemption.

212.6 Management Consignment exemption.

212.7 Change in circumstances.

212.8 Enforcement.

212.9 Effect of Interlocks Act on Clayton Act.

Authority: 12 U.S.C. 3201-3208; 15 U.S.C. 19.

Sec. 212.1 Authority, purpose, and scope.

(a) Authority. This part is issued under the provisions of the

Depository Institution Management Interlocks Act (Interlocks Act) (12

U.S.C. 3201 et seq.), as amended.

(b) Purpose. The purpose of the Interlocks Act and this part is to

foster competition by generally prohibiting a management official from

serving two nonaffiliated depository organizations in situations where

the management interlock likely would have an anticompetitive effect.

(c) Scope. This part applies to management officials of state

member banks, bank holding companies, and their affiliates.

Sec. 212.2 Definitions.

For purposes of this part, the following definitions apply:

(a) Affiliate. (1) The term affiliate has the meaning given in

section 202 of the Interlocks Act (12 U.S.C. 3201). For purposes of

that section, shares held by an individual include shares held by

members of his or her immediate family. ``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.

(2) For purposes of section 202(3)(B) of the Interlocks Act (12

U.S.C. 3201(3)(B)), an affiliate relationship based on common ownership

does not exist if the Board determines, after

[[Page 67434]]

giving the affected persons the opportunity to respond, that the

asserted affiliation was 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 Board considers, 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.

(b) Anticompetitive effect means a monopoly or substantial

lessening of competition.

(c) Area median income means:

(1) The median family income for the metropolitan statistical area

(MSA), if a depository organization is located in an MSA; or

(2) The statewide nonmetropolitan median family income, if a

depository organization is located outside an MSA.

(d) Community means city, town, or village, or contiguous and

adjacent cities, towns, or villages.

(e) Contiguous or adjacent cities, towns, or villages means cities,

towns, or villages whose borders touch each other or whose borders are

within 10 road miles of each other at their closest points. The

property line of an office located in an unincorporated city, town, or

village is the boundary line of that city, town, or village for the

purpose of this definition.

(f) Critical, as used in Sec. 212.5, means important to restoring

or maintaining a depository organization's safe and sound operations.

(g) 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 (12 U.S.C. 3201)) having its principal office

located in the United States.

(h) 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

under the laws of the United States and having a principal office

located in the United States. Additionally, a United States office,

including a branch or agency, of a foreign commercial bank is a

depository institution.

(i) Depository institution affiliate means a depository institution

that is an affiliate of a depository organization.

(j) Depository organization means a depository institution or a

depository holding company.

(k) Low- and moderate-income areas means areas where the median

family income is less than 100 percent of the area median income.

(l) Management official. (1) The term management official includes:

(i) A director;

(ii) An advisory or honorary director of a depository institution

with total assets of $100 million or more;

(iii) A senior executive officer as that term is defined in 12 CFR

225.71(a);

(iv) A branch manager;

(v) A trustee of a depository organization under the control of

trustees; and

(vi) Any person who has a representative or nominee, as defined in

paragraph (p) of this section, serving in any of the capacities in this

paragraph (l) (1).

(2) The term management official does not include:

(i) A person whose management functions relate exclusively to the

business of retail merchandising or manufacturing;

(ii) A person whose management functions relate principally to a

foreign commercial bank's business outside the United States; or

(iii) A person described in the provisos of section 202(4) of the

Interlocks Act (referring to an officer of a State-chartered savings

bank, cooperative bank, or trust company that neither makes real estate

mortgage loans nor accepts savings).

(m) Office means a principal or branch office of a depository

institution located in the United States. Office does not include a

representative office of a foreign commercial bank, an electronic

terminal, a loan production office.

(n) Person means a natural person, corporation, or other business

entity.

(o) Relevant metropolitan statistical area (RMSA) means an MSA, a

primary MSA, or a consolidated MSA that is not comprised of designated

Primary MSAs to the extent that these terms are defined and applied by

the Office of Management and Budget.

(p) Representative or nominee means a natural person who serves as

a management official and has an obligation to act on behalf of another

person with respect to management responsibilities. The Board will find

that a person has an obligation to act on behalf of another person only

if the first person has an agreement, express or implied, to act on

behalf of the second person with respect to management

responsibilities. The Board will determine, after giving the affected

persons an opportunity to respond, whether a person is a representative

or nominee.

(q) Total assets. (1) The term total assets means assets measured

on a consolidated basis and reported in the most recent fiscal year-end

Consolidated Report of Condition and Income.

(2) The term total assets does not include:

(i) Assets of a diversified savings and loan holding company as

defined by section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C.

1467a(a)(1)(F)) other than the assets of its depository institution

affiliate;

(ii) Assets of a bank holding company that is exempt from the

prohibitions of section 4 of the Bank Holding Company Act of 1956

pursuant to an order issued under section 4(d) of that Act (12 U.S.C.

1843(d)) other than the assets of its depository institution affiliate;

or

(iii) Assets of offices of a foreign commercial bank other than the

assets of its United States branch or agency.

(r) United States means the United States of America, any State or

territory of the United States of America, the District of Columbia,

Puerto Rico, Guam, American Samoa, and the Virgin Islands.

Sec. 212.3 Prohibitions.

(a) Community. A management official of a depository organization

may not serve at the same time as a management official of an

unaffiliated depository organization if the depository organizations in

question (or a depository institution affiliate thereof) have offices

in the same community.

(b) RMSA. A management official of a depository organization may

not serve at the same time as a management official of an unaffiliated

depository organization if the depository organizations in question (or

a depository institution affiliate thereof) have offices in the same

RMSA and each depository organization has total assets of $20 million

or more.

(c) Major assets. A management official of a depository

organization with total assets exceeding $1 billion (or any affiliate

thereof) may not serve at the same time as a management official of an

unaffiliated depository organization with total assets exceeding $500

million (or any affiliate thereof), regardless of the location of the

two depository organizations.

Sec. 212.4 Interlocking relationships permitted by statute.

The prohibitions of Sec. 212.3 do not apply in the case of any one

or more of

[[Page 67435]]

the following organizations or to a subsidiary thereof:

(a) A depository organization that has been placed formally in

liquidation, or which is in the hands of a receiver, conservator, or

other official exercising a similar function;

(b) A corporation operating under section 25 or section 25A of the

Federal Reserve Act (12 U.S.C. 601 et seq. and 12 U.S.C. 611 et seq.,

respectively) (Edge Corporations and Agreement Corporations);

(c) A credit union being served by a management official of another

credit union;

(d) A depository organization that does not do business within the

United States except as an incident to its activities outside the

United States;

(e) A State-chartered savings and loan guaranty corporation;

(f) A Federal Home Loan Bank or any other bank organized solely to

serve depository institutions (a bankers' bank) or solely for the

purpose of providing securities clearing services and services related

thereto for depository institutions and securities companies;

(g) A depository organization that is closed or is in danger of

closing as determined by the appropriate Federal depository

institutions regulatory agency and is acquired by another depository

organization. This exemption lasts for five years, beginning on the

date the depository organization is acquired; and

(h)(1) A diversified savings and loan holding company (as defined

in section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C.

1467a(a)(1)(F)) with respect to the service of a director of such

company who also is a director of an unaffiliated depository

organization if:

(i) Both the diversified savings and loan holding company and the

unaffiliated depository organization notify their appropriate Federal

depository institutions regulatory agency at least 60 days before the

dual service is proposed to begin; and

(ii) The appropriate regulatory agency does not disapprove the dual

service before the end of the 60-day period.

(2) The Board may disapprove a notice of proposed service if it

finds that:

(i) The service cannot be structured or limited so as to preclude

an anticompetitive effect in financial services in any part of the

United States;

(ii) The service would lead to substantial conflicts of interest or

unsafe or unsound practices; or

(iii) The notificant failed to furnish all the information required

by the Board.

(3) The Board may require that any interlock permitted under this

paragraph (h) be terminated if a change in circumstances occurs with

respect to one of the interlocked depository organizations that would

have provided a basis for disapproval of the interlock during the

notice period.

Sec. 212.5 Regulatory Standards exemption.

(a) Criteria. The Board may permit an interlock that otherwise

would be prohibited by the Interlocks Act and Sec. 212.3 if:

(1) The board of directors of the depository organization (or the

organizers of a depository organization being formed) that seeks the

exemption provides a resolution to the Board certifying that the

organization, after the exercise of reasonable efforts, is unable to

locate any other candidate from the community or RMSA, as appropriate,

who:

(i) Possesses the level of expertise required by the depository

organization and who is not prohibited from service by the Interlocks

Act; and

(ii) Is willing to serve as a management official; and

(2) The Board, after reviewing an application submitted by the

depository organization seeking the exemption, determines that:

(i) The management official is critical to the safe and sound

operations of the affected depository organization; and

(ii) Service by the management official will not produce an

anticompetitive effect with respect to the depository organization.

(b) Presumptions. The Board applies the following presumptions when

reviewing any application for a Regulatory Standards exemption:

(1) An interlock has no anticompetitive effect if it involves

depository institutions that, if merged, would not cause the post-

merger Herfindahl-Hirschman Index (HHI) to exceed 1800 and would not

cause the HHI to increase by more than 200 points. This presumption

does not apply to institutions subject to the major assets prohibition

of Sec. 212.3(c).

(2) A proposed management official is critical to the safe and

sound operations of a depository institution if the official is

approved by the Board to serve as a director or senior executive

officer of the institution pursuant to 12 CFR 225.71 and the

institution had operated for less than two years, was not in compliance

with minimum capital requirements, or otherwise was in a ``troubled

condition'' as defined in 12 CFR 225.71 at the time the service under

that section was approved.

(c) Duration of interlock. An interlock permitted under this

section may continue until the Board notifies the affected

organizations otherwise. The Board may require termination of any

interlock permitted under this section if the Board concludes, after

giving the affected persons the opportunity to respond, that the

determinations under paragraph (a)(2) of this section no longer may be

made.

Sec. 212.6 Management Consignment exemption.

(a) Criteria. The Board may permit an interlock that otherwise

would be prohibited by the Interlocks Act and Sec. 212.3 if the Board,

after reviewing an application submitted by the depository organization

seeking an exemption, determines that the interlock would:

(1) Improve the provision of credit to low- and moderate-income

areas;

(2) Increase the competitive position of a minority- or woman-owned

depository organization;

(3) Strengthen the management of a depository institution that has

been chartered for less than two years at the time an application is

filed under this part; or

(4) Strengthen the management of a depository institution that is

in an unsafe or unsound condition as determined by the Board on a case-

by-case basis.

(b) Presumptions. The Board applies the following presumptions in

reviewing any application for a Management Consignment exemption:

(1) A proposed management official is capable of strengthening the

management of a depository institution described in paragraph (a)(3) of

this section if that official is approved by the Board to serve as a

director or senior executive officer of that institution pursuant to 12

CFR 225.71 and the institution had operated for less than two years at

the time the service was approved; and

(2) A proposed management official is capable of strengthening the

management of a depository institution described in paragraph (a)(4) of

this section if the official is approved by the Board to serve as a

director or senior executive officer of the institution pursuant to 12

CFR 225.71 and the institution was not in compliance with minimum

capital requirements or otherwise was in a ``troubled condition'' as

defined under 12 CFR 225.71 at the time service was approved.

(c) Duration of interlock. An interlock granted under this section

may continue for a period of two years from the date of approval. The

Board may extend this period for one additional two-year

[[Page 67436]]

period if the depository organization applies for an extension at least

30 days before the current exemption expires and satisfies one of the

criteria specified in paragraph (a) of this section. The provisions set

forth in paragraph (b) of this section also apply to applications for

extensions.

Sec. 212.7 Change in circumstances.

(a) Termination. A management official shall terminate his or her

service or apply for an exemption to the Interlocks Act if a change in

circumstances causes the service to become prohibited under that Act. A

change in circumstances may include, but is not limited to, an increase

in asset size of an organization, a change in the delineation of the

RMSA or community, the establishment of an office, an acquisition, a

merger, a consolidation, or any reorganization of the ownership

structure of a depository organization that causes a previously

permissible interlock to become prohibited.

(b) Transition period. A management official described in paragraph

(a) of this section may continue to serve the state member bank or bank

holding company involved in the interlock for 15 months following the

date of the change in circumstances. The Board may shorten this period

under appropriate circumstances.

Sec. 212.8 Enforcement.

Except as noted in this section, the Board administers and enforces

the Interlocks Act with respect to state member banks, bank holding

companies, and affiliates of either, and may refer any case of a

prohibited interlocking relationship involving these institutions 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 a bank holding company is subject to the primary regulation of

another Federal depository organization supervisory agency, then the

Board does not administer and enforce the Interlocks Act with respect

to that affiliate.

Sec. 212.9 Effect of Interlocks Act on Clayton Act.

The Board 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.

Dated: December 14, 1995.

William W. Wiles,

Secretary of the Board.

Federal Deposit Insurance Corporation

12 CFR CHAPTER III

Authority and Issuance

For the reasons set forth in the joint preamble, pursuant to its

authority under section 209 of the Depository Institution Management

Interlocks Act (12 U.S.C. 3207), the Board of Directors of the FDIC

proposes to revise part 348 of chapter III of title 12 of the Code of

Federal Regulations to read as follows:

PART 348--MANAGEMENT OFFICIAL INTERLOCKS

Sec.

348.1 Authority, purpose, and scope.

348.2 Definitions.

348.3 Prohibitions.

348.4 Interlocking relationships permitted by statute.

348.5 Regulatory Standards exemption.

348.6 Management Consignment exemption.

348.7 Change in circumstances.

348.8 Enforcement.

Authority: 12 U.S.C. 3207, 12 U.S.C. 1823(k).

Sec. 348.1 Authority, purpose, and scope.

(a) Authority. This part is issued under the provisions of the

Depository Institution Management Interlocks Act (Interlocks Act) (12

U.S.C. 3201 et seq.), as amended.

(b) Purpose. The purpose of the Interlocks Act and this part is to

foster competition by generally prohibiting a management official from

serving two nonaffiliated depository organizations in situations where

the management interlock likely would have an anticompetitive effect.

(c) Scope. This part applies to management officials of insured

nonmember banks and their affiliates.

Sec. 348.2 Definitions.

For purposes of this part, the following definitions apply:

(a) Affiliate. (1) The term affiliate has the meaning given in

section 202 of the Interlocks Act (12 U.S.C. 3201). For purposes of

that section, shares held by an individual include shares held by

members of his or her immediate family. ``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.

(2) For purposes of section 202(3)(B) of the Interlocks Act (12

U.S.C. 3201(3)(B)), an affiliate relationship involving an insured

nonmember bank based on common ownership does not exist if the FDIC

determines, after giving the affected persons the opportunity to

respond, that the asserted affiliation was 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 FDIC considers, 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.

(b) Anticompetitive effect means a monopoly or substantial

lessening of competition.

(c) Area median income means:

(1) The median family income for the metropolitan statistical area

(MSA), if a depository organization is located in an MSA; or

(2) The statewide nonmetropolitan median family income, if a

depository organization is located outside an MSA.

(d) Community means city, town, or village, and contiguous or

adjacent cities, towns, or villages.

(e) Contiguous or adjacent cities, towns, or villages means cities,

towns, or villages whose borders touch each other or whose borders are

within 10 road miles of each other at their closest points. The

property line of an office located in an unincorporated city, town, or

village is the boundary line of that city, town, or village for the

purpose of this definition.

(f) Critical means important to restoring or maintaining a

depository organization's safe and sound operations.

(g) 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 (12 U.S.C. 3201)) having its principal office

located in the United States.

(h) 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

under the laws of the United States and having a principal office

located in the United States. Additionally, a United States office,

including a branch or agency, of a foreign commercial bank is a

depository institution.

[[Page 67437]]

(i) Depository institution affiliate means a depository institution

that is an affiliate of a depository organization.

(j) Depository organization means a depository institution or a

depository holding company.

(k) Low- and moderate-income areas means areas where the median

family income is less than 100 percent of the area median income.

(l) Management official. (1) The term management official includes:

(i) A director;

(ii) An advisory or honorary director of a depository institution

with total assets of $100 million or more;

(iii) A senior executive officer as that term is defined in 12 CFR

303.14(a)(3);

(iv) A branch manager;

(v) A trustee of a depository organization under the control of

trustees; and

(vi) Any person who has a representative or nominee serving in any

of the capacities in this paragraph (l)(1).

(2) The term management official does not include:

(i) A person whose management functions relate exclusively to the

business of retail merchandising or manufacturing;

(ii) A person whose management functions relate principally to the

business outside the United States of a foreign commercial bank; or

(iii) A person described in the provisos of section 202(4) of the

Interlocks Act (12 U.S.C. 3201(4)) (referring to an officer of a State-

chartered savings bank, cooperative bank, or trust company that neither

makes real estate mortgage loans nor accepts savings).

(m) Office means a principal or branch office of a depository

institution located in the United States. Office does not include a

representative office of a foreign commercial bank, an electronic

terminal, or a loan production office.

(n) Person means a natural person, corporation, or other business

entity.

(o) Relevant metropolitan statistical area (RMSA) means an MSA, a

primary MSA, or a consolidated MSA that is not comprised of designated

Primary MSAs to the extent that these terms are defined and applied by

the Office of Management and Budget.

(p) Representative or nominee means a natural person who serves as

a management official and has an obligation to act on behalf of another

person with respect to management responsibilities. The FDIC will find

that a person has an obligation to act on behalf of another person only

if the first person has an agreement, express or implied, to act on

behalf of the second person with respect to management

responsibilities. The FDIC will determine, after giving the affected

persons an opportunity to respond, whether a person is a representative

or nominee.

(q) Total assets. (1) The term total assets includes assets

measured on a consolidated basis and reported in the most recent fiscal

year-end Consolidated Report of Condition and Income.

(2) The term total assets does not include:

(i) Assets of a diversified savings and loan holding company as

defined by section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C.

1467a(a)(1)(F)) other than the assets of its depository institution

affiliate;

(ii) Assets of a bank holding company that is exempt from the

prohibitions of section 4 of the Bank Holding Company Act of 1956

pursuant to an order issued under section 4(d) of that Act (12 U.S.C.

1843(d)) other than the assets of its depository institution affiliate;

or

(iii) Assets of offices of a foreign commercial bank other than the

assets of its United States branch or agency.

(r) United States means the United States of America, any State or

territory of the United States of America, the District of Columbia,

Puerto Rico, Guam, American Samoa, and the Virgin Islands.

Sec. 348.3 Prohibitions.

(a) Community. A management official of a depository organization

may not serve at the same time as a management official of an

unaffiliated depository organization if the depository organizations in

question (or a depository institution affiliate thereof) have offices

in the same community.

(b) RMSA. A management official of a depository organization may

not serve at the same time as a management official of an unaffiliated

depository organization if the depository organizations in question (or

a depository institution affiliate thereof) have offices in the same

RMSA and each depository organization has total assets of $20 million

or more.

(c) Major assets. A management official of a depository

organization with total assets exceeding $1 billion (or any affiliate

thereof) may not serve at the same time as a management official of an

unaffiliated depository organization with total assets exceeding $500

million (or any affiliate thereof), regardless of the location of the

two depository organizations.

Sec. 348.4 Interlocking relationships permitted by statute.

The prohibitions of Sec. 348.3 do not apply in the case of any one

or more of the following organizations or to a subsidiary thereof:

(a) A depository organization that has been placed formally in

liquidation, or which is in the hands of a receiver, conservator, or

other official exercising a similar function;

(b) A corporation operating under section 25 or section 25A of the

Federal Reserve Act (12 U.S.C. 601 et seq. and 12 U.S.C. 611 et seq.,

respectively) (Edge Corporations and Agreement Corporations);

(c) A credit union being served by a management official of another

credit union;

(d) A depository organization that does not do business within the

United States except as an incident to its activities outside the

United States;

(e) A State-chartered savings and loan guaranty corporation;

(f) A Federal Home Loan bank or any other bank organized solely to

serve depository institutions (a bankers' bank) or solely for the

purpose of providing securities clearing services and services related

thereto for depository institutions and securities companies;

(g) A depository organization that is closed or is in danger of

closing as determined by the appropriate Federal depository

institutions regulatory agency and is acquired by another depository

organization. This exemption lasts for five years, beginning on the

date the depository organization is acquired;

(h) A savings association whose acquisition has been authorized on

an emergency basis in accordance with section 13(k) of the Federal

Deposit Insurance Act (12 U.S.C. 1823(k)) with resulting dual service

by a management official that would otherwise be prohibited under the

Interlocks Act which may continue for up to 10 years from the date of

the acquisition provided that the FDIC has given its approval for the

continuation of such service; and

(i)(1) A diversified savings and loan holding company (as defined

in section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C.

1467a(a)(1)(F)) with respect to the service of a director of such

company who is also a director of an unaffiliated depository

organization if:

(i) Both the diversified savings and loan holding company and the

unaffiliated depository organization notify their appropriate Federal

depository institutions regulatory agency at least 60 days before the

dual service is proposed to begin; and

(ii) The appropriate regulatory agency does not disapprove the dual

service before the end of the 60-day period.

[[Page 67438]]

(2) The FDIC may disapprove a notice of proposed service if it

finds that:

(i) The service cannot be structured or limited so as to preclude

an anticompetitive effect in financial services in any part of the

United States;

(ii) The service would lead to substantial conflicts of interest or

unsafe or unsound practices; or

(iii) The notificant failed to furnish all the information required

by the FDIC.

(3) The FDIC may require that any interlock permitted under this

paragraph (h) be terminated if a change in circumstances occurs with

respect to one of the interlocked depository organizations that would

have provided a basis for disapproval of the interlock during the

notice period.

Sec. 348.5 Regulatory Standards exemption.

(a) Criteria. The FDIC may permit an interlock that otherwise would

be prohibited by the Interlocks Act and Sec. 348.3 if:

(1) The board of directors of the depository organization (or the

organizers of a depository organization being formed) that seeks the

exemption provides a resolution to the FDIC certifying that the

organization, after the exercise of reasonable efforts, is unable to

locate any other candidate from the community or RMSA, as appropriate,

who:

(i) Possesses the level of expertise required by the depository

organization and who is not prohibited from service by the Interlocks

Act; and

(ii) Is willing to serve as a management official; and

(2) The FDIC, after reviewing an application submitted by the

depository organization seeking the exemption, determines that:

(i) The management official is critical to the safe and sound

operations of the affected depository organization; and

(ii) Service by the management official will not produce an

anticompetitive effect with respect to the depository organization.

(b) Presumptions. The FDIC applies the following presumptions when

reviewing any application for a Regulatory Standards exemption:

(1) An interlock has no anticompetitive effect if it involves

depository institutions that, if merged, would not cause the post-

merger Herfindahl-Hirschman Index (HHI) to exceed 1800 and would not

cause the HHI to increase by more than 200 points. This presumption

shall not apply to institutions subject to the major assets prohibition

of Sec. 348.3(c).

(2) A proposed management official is critical to the safe and

sound operations of a depository institution if that official is

approved by the FDIC to serve as a director or a senior executive

officer of that institution pursuant to 12 CFR 303.14 and the

institution had operated for less than two years, was not in compliance

with minimum capital requirements, or otherwise was in a ``troubled

condition'' as defined by 12 CFR 303.14(a)(4) at the time the service

under that section was approved.

(c) Duration of interlock. An interlock permitted under this

section may continue until the FDIC notifies the affected organizations

otherwise. The FDIC may require termination of any interlock permitted

under this section if the FDIC concludes, after giving the affected

persons the opportunity to respond, that the determinations under

paragraph (a)(2) of this section no longer may be made.

Sec. 348.6 Management Consignment exemption.

(a) Criteria. The FDIC may permit an interlock that otherwise would

be prohibited by the Interlocks Act and Sec. 348.3 if the FDIC, after

reviewing an application submitted by the depository organization

seeking an exemption, determines that the interlock would:

(1) Improve the provision of credit to low- and moderate-income

areas;

(2) Increase the competitive position of a minority- or woman-owned

depository organization;

(3) Strengthen the management of a depository institution that has

been chartered for less than two years at the time an application is

filed under this part; or

(4) Strengthen the management of a depository institution that is

in an unsafe or unsound condition as determined by the FDIC on a case-

by-case basis.

(b) Presumptions. The FDIC applies the following presumptions when

reviewing any application for a Management Consignment exemption:

(1) A proposed management official is capable of strengthening the

management of a depository institution described in paragraph (a)(3) of

this section if that official is approved by the FDIC to serve as a

director or a senior executive officer of that institution pursuant to

12 CFR 303.14 and the institution had operated for less than two years

at the time the service under 12 CFR 303.14 was approved; and

(2) A proposed management official is capable of strengthening the

management of a depository institution described in paragraph (a)(4) of

this section if that official is approved by the FDIC to serve as a

director or a senior executive officer of that institution pursuant to

12 CFR 303.14 and the institution was not in compliance with minimum

capital requirements or otherwise was in a ``troubled condition'' as

defined under 12 CFR 303.14 at the time service under that section was

approved.

(c) Duration of interlock. An interlock granted under this section

may continue for a period of two years from the date of approval. The

FDIC may extend this period for one additional two-year period if the

depository organization applies for an extension at least 30 days

before the current exemption expires and satisfies one of the criteria

specified in paragraph (a) of this section. The provisions set forth in

paragraph (b) of this section also apply to applications for

extensions.

Sec. 348.7 Change in circumstances.

(a) Termination. A management official shall terminate his or her

service or apply for an exemption to the Interlocks Act if a change in

circumstances causes the service to become prohibited under that Act. A

change in circumstances may include, but is not limited to, an increase

in asset size of an organization, a change in the delineation of the

RMSA or community, the establishment of an office, an acquisition, a

merger, a consolidation, or any reorganization of the ownership

structure of a depository organization that causes a previously

permissible interlock to become prohibited.

(b) Transition period. A management official described in paragraph

(a) of this section may continue to serve the insured nonmember bank

involved in the interlock for 15 months following the date of the

change in circumstances. The FDIC may shorten this period under

appropriate circumstances.

Sec. 348.8 Enforcement.

Except as noted in this section, the FDIC administers and enforces

the Interlocks Act with respect to insured nonmember banks and their

affiliates and may refer any case of a prohibited interlocking

relationship involving these institutions to the Attorney General of

the United States to enforce compliance with the Interlocks Act and

this part. If an affiliate of an insured nonmember bank is subject to

the primary regulation of another federal depository organization

supervisory agency, then the FDIC does not administer and enforce the

Interlocks Act with respect to that affiliate.

By order of the Board of Directors.

Dated at Washington, DC, this 12th day of December, 1995.

[[Page 67439]]

Federal Deposit Insurance Corporation.

Jerry L. Langley,

Executive Secretary.

Office of Thrift Supervision

12 CFR CHAPTER V

Authority and Issuance

For the reasons set out in the joint preamble, the OTS proposes to

revise part 563f of chapter V of title 12 of the Code of Federal

Regulations to read as follows:

PART 563f--MANAGEMENT OFFICIAL INTERLOCKS

Sec.

563f.1 Authority, purpose, and scope.

563f.2 Definitions.

563f.3 Prohibitions.

563f.4 Interlocking relationships permitted by statute.

563f.5 Regulatory Standards exemption.

563f.6 Management Consignment exemption.

563f.7 Change in circumstances.

563f.8 Enforcement.

563f.9 Interlocking relationships permitted pursuant to Federal

Deposit Insurance Act.

Authority: 12 U.S.C. 3201-3208.

Sec. 563f.1 Authority, purpose, and scope.

(a) Authority. This part is issued under the provisions of the

Depository Institution Management Interlocks Act (Interlocks Act) (12

U.S.C. 3201 et seq.), as amended.

(b) Purpose. The purpose of the Interlocks Act and this part is to

foster competition by generally prohibiting a management official from

serving two nonaffiliated depository organizations in situations where

the management interlock likely would have an anticompetitive effect.

(c) Scope. This part applies to management officials of savings

associations, savings and loan holding companies, and affiliates of

either.

Sec. 563f.2 Definitions.

For purposes of this part, the following definitions apply:

(a) Affiliate. (1) The term affiliate has the meaning given in

section 202 of the Interlocks Act (12 U.S.C. 3201). For purposes of

that section, shares held by an individual include shares held by

members of his or her immediate family. ``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.

(2) For purposes of section 202(3)(B) of the Interlocks Act (12

U.S.C. 3201(3)(B)), an affiliate relationship involving a savings

association or savings and loan holding company based on common

ownership does not exist if the OTS determines, after giving the

affected persons the opportunity to respond, that the asserted

affiliation was 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

OTS considers, 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.

(b) Anticompetitive effect means a monopoly or substantial

lessening of competition.

(c) Area median income means:

(1) The median family income for the metropolitan statistical area

(MSA), if a depository organization is located in an MSA; or

(2) The statewide nonmetropolitan median family income, if a

depository organization is located outside an MSA.

(d) Community means city, town, or village, and contiguous or

adjacent cities, towns, or villages.

(e) Contiguous or adjacent cities, towns, or villages means cities,

towns, or villages whose borders touch each other or whose borders are

within 10 road miles of each other at their closest points. The

property line of an office located in an unincorporated city, town, or

village is the boundary line of that city, town, or village for the

purpose of this definition.

(f) Critical means important to restoring or maintaining a

depository organization's safe and sound operations.

(g) 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 (12 U.S.C. 3201)) having its principal office

located in the United States.

(h) 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

under the laws of the United States and having a principal office

located in the United States. Additionally, a United States office,

including a branch or agency, of a foreign commercial bank is a

depository institution.

(i) Depository institution affiliate means a depository institution

that is an affiliate of a depository organization.

(j) Depository organization means a depository institution or a

depository holding company.

(k) Low- and moderate-income areas means areas where the median

family income is less than 100 percent of the area median income.

(l) Management official. (1) The term management official includes:

(i) A director;

(ii) An advisory or honorary director of a depository institution

with total assets of $100 million or more;

(iii) A senior executive officer as that term is defined in 12 CFR

574.9(a)(2);

(iv) A branch manager;

(v) A trustee of a depository organization under the control of

trustees; and

(vi) Any person who has a representative or nominee serving in any

of the capacities in this paragraph (l)(1).

(2) The term management official does not include:

(i) A person whose management functions relate exclusively to the

business of retail merchandising or manufacturing;

(ii) A person whose management functions relate principally to the

business outside the United States of a foreign commercial bank; or

(iii) A person described in the provisos of section 202(4) of the

Interlocks Act (12 U.S.C. 3201(4)) (referring to an officer of a State-

chartered savings bank, cooperative bank, or trust company that neither

makes real estate mortgage loans nor accepts savings).

(m) Office means a principal or branch office of a depository

institution located in the United States. Office does not include a

representative office of a foreign commercial bank, an electronic

terminal, or a loan production office.

(n) Person means a natural person, corporation, or other business

entity.

(o) Relevant metropolitan statistical area (RMSA) means an MSA, a

primary MSA, or a consolidated MSA that is not comprised of designated

Primary MSAs to the extent that these terms are defined and applied by

the Office of Management and Budget.

(p) Representative or nominee means a natural person who serves as

a management official and has an obligation to act on behalf of another

person with respect to management responsibilities. The OTS will find

that a person has an obligation to act on behalf of another person only

if the first person has an agreement, express or implied, to act on

behalf of the second

[[Page 67440]]

person with respect to management responsibilities. The OTS will

determine, after giving the affected persons an opportunity to respond,

whether a person is a representative or nominee.

(q) Savings association means:

(i) Any Federal savings association (as defined in section 3(b)(2)

of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(2));

(ii) Any state savings association (as defined in section 3(b)(3)

of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(3)) the

deposits of which are insured by the Federal Deposit Insurance

Corporation; and

(iii) Any corporation (other than a bank as defined in section

3(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(a)(1)) the

deposits of which are insured by the Federal Deposit Insurance

Corporation, that the Board of Directors of the Federal Deposit

Insurance Corporation and the Director of the Office of Thrift

Supervision jointly determine to be operating in substantially the same

manner as a savings association.

(r) Total assets. (1) The term total assets means assets measured

on a consolidated basis and reported in the most recent fiscal year-end

Consolidated Report of Condition and Income.

(2) The term total assets does not include:

(i) Assets of a diversified savings and loan holding company as

defined by section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C.

1467a(a)(1)(F)) other than the assets of its depository institution

affiliate;

(ii) Assets of a bank holding company that is exempt from the

prohibitions of section 4 of the Bank Holding Company Act of 1956

pursuant to an order issued under section 4(d) of that Act (12 U.S.C.

1843(d)) other than the assets of its depository institution affiliate;

or

(iii) Assets of offices of a foreign commercial bank other than the

assets of its United States branch or agency.

(s) United States means the United States of America, any State or

territory of the United States of America, the District of Columbia,

Puerto Rico, Guam, American Samoa, and the Virgin Islands.

Sec. 563f.3 Prohibitions.

(a) Community. A management official of a depository organization

may not serve at the same time as a management official of an

unaffiliated depository organization if the depository organizations in

question (or a depository institution affiliate thereof) have offices

in the same community.

(b) RMSA. A management official of a depository organization may

not serve at the same time as a management official of an unaffiliated

depository organization if the depository organizations in question (or

a depository institution affiliate thereof) have offices in the same

RMSA and each depository organization has total assets of $20 million

or more.

(c) Major assets. A management official of a depository

organization with total assets exceeding $1 billion (or any affiliate

thereof) may not serve at the same time as a management official of an

unaffiliated depository organization with total assets exceeding $500

million (or any affiliate thereof), regardless of the location of the

two depository organizations.

Sec. 563f.4 Interlocking relationships permitted by statute.

The prohibitions of Sec. 563f.3 do not apply in the case of any one

or more of the following organizations or to a subsidiary thereof:

(a) A depository organization that has been placed formally in

liquidation, or which is in the hands of a receiver, conservator, or

other official exercising a similar function;

(b) A corporation operating under section 25 or section 25A of the

Federal Reserve Act (12 U.S.C. 601 et seq. and 12 U.S.C. 611 et seq.,

respectively) (Edge Corporations and Agreement Corporations);

(c) A credit union being served by a management official of another

credit union;

(d) A depository organization that does not do business within the

United States except as an incident to its activities outside the

United States;

(e) A State-chartered savings and loan guaranty corporation;

(f) A Federal Home Loan Bank or any other bank organized solely to

serve depository institutions (a bankers' bank) or solely for the

purpose of providing securities clearing services and services related

thereto for depository institutions and securities companies;

(g) A depository organization that is closed or is in danger of

closing as determined by the appropriate Federal depository

institutions regulatory agency and is acquired by another depository

organization. This exemption lasts for five years, beginning on the

date the depository organization is acquired;

(h)(1) A diversified savings and loan holding company (as defined

in section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C.

1467a(a)(1)(F)) with respect to the service of a director of such

company who also is a director of an unaffiliated depository

organization if:

(i) Both the diversified savings and loan holding company and the

unaffiliated depository organization notify their appropriate Federal

depository institutions regulatory agency at least 60 days before the

dual service is proposed to begin; and

(ii) The appropriate regulatory agency does not disapprove the dual

service before the end of the 60-day period.

(2) The OTS may disapprove a notice of proposed service if it finds

that:

(i) The service cannot be structured or limited so as to preclude

an anticompetitive effect in financial services in any part of the

United States;

(ii) The service would lead to substantial conflicts of interest or

unsafe or unsound practices; or

(iii) The notificant failed to furnish all the information required

by the OTS.

(3) The OTS may require that any interlock permitted under this

paragraph be terminated if a change in circumstances occurs with

respect to one of the interlocked depository organizations that would

have provided a basis for disapproval of the interlock during the

notice period; and

(i) Any savings association or any savings and loan holding company

(as defined in section 10(a)(1)(D) of the Home Owners' Loan Act) which

has issued stock in connection with a qualified stock issuance pursuant

to section 10(q) of such Act, except that this paragraph (i) shall

apply only with regard to service by a single management official of

such savings association or holding company, or any subsidiary of such

savings association or holding company, by a single management official

of the savings and loan holding company which purchased the stock

issued in connection with such qualified stock issuance, and shall

apply only when the OTS has determined that such service is consistent

with the purposes of the Interlocks Act and the Home Owners' Loan Act.

Sec. 563f.5 Regulatory Standards exemption.

(a) Criteria. The OTS may permit an interlock that otherwise would

be prohibited by the Interlocks Act and Sec. 563f.3 if:

(1) The board of directors of the depository organization (or the

organizers of a depository organization being formed) that seeks the

exemption provides a resolution to the OTS certifying that the

organization, after the exercise of reasonable efforts, is unable to

locate any other candidate from the community or RMSA, as appropriate,

who:

[[Page 67441]]

(i) Possesses the level of expertise required by the depository

organization and who is not prohibited from service by the Interlocks

Act; and

(ii) Is willing to serve as a management official; and

(2) The OTS, after reviewing an application submitted by the

depository organization seeking the exemption, determines that:

(i) The management official is critical to the safe and sound

operations of the affected depository organization; and

(ii) Service by the management official will not produce an

anticompetitive effect with respect to the depository organization.

(b) Presumptions. The OTS applies the following presumptions when

reviewing any application for a Regulatory Standards exemption:

(1) An interlock has no anticompetitive effect if it involves

depository institutions that, if merged, would not cause the post-

merger Herfindahl-Hirschman Index (HHI) to exceed 1800 and would not

cause the HHI to increase by more than 200 points. This presumption

shall not apply to institutions subject to the major assets prohibition

of Sec. 563f.3(c).

(2) A proposed management official is critical to the safe and

sound operations of a depository institution if that official is

approved by the OTS to serve as a director or senior executive officer

of that institution pursuant to 12 CFR 574.9 and the institution had

operated for less than two years, was not in compliance with minimum

capital requirements, or otherwise was in a ``troubled condition'' as

defined in 12 CFR 574.9 at the time the service under that section was

approved.

(c) Duration of interlock. An interlock permitted under this

section may continue until the OTS notifies the affected organizations

otherwise. The OTS may require termination of any interlock permitted

under this section if the OTS concludes, after giving the affected

persons the opportunity to respond, that the determinations under

paragraph (a)(2) of this section no longer may be made.

Sec. 563f.6 Management Consignment exemption.

(a) Criteria. The OTS may permit an interlock that otherwise would

be prohibited by the Interlocks Act and Sec. 563f.3 if the OTS, after

reviewing an application submitted by the depository organization

seeking an exemption, determines that the interlock would:

(1) Improve the provision of credit to low- and moderate-income

areas;

(2) Increase the competitive position of a minority- or woman-owned

depository organization;

(3) Strengthen the management of a depository institution that has

been chartered for less than three years at the time an application is

filed under this part; or

(4) Strengthen the management of a depository institution that is

in an unsafe or unsound condition as determined by the OTS on a case-

by-case basis.

(b) Presumptions. The OTS applies the following presumptions when

reviewing any application for a Management Consignment exemption:

(1) A proposed management official is capable of strengthening the

management of a depository institution described in paragraph (a)(3) of

this section if that official is approved by the OTS to serve as a

director or senior executive officer of that institution pursuant to 12

CFR 574.9 and the institution had operated for less than two years at

the time the service under 12 CFR 574.9 was approved; and

(2) A proposed management official is capable of strengthening the

management of a depository institution described in paragraph (a)(4) of

this section if that official is approved by the OTS to serve as a

director or senior executive officer of that institution pursuant to 12

CFR 574.9 and the institution was not in compliance with minimum

capital requirements or otherwise was in a ``troubled condition'' as

defined under 12 CFR 574.9 at the time service under that section was

approved.

(c) Duration of interlock. An interlock granted under this section

may continue for a period of two years from the date of approval. The

OTS may extend this period for one additional two-year period if the

depository organization applies for an extension at least 30 days

before the current exemption expires and satisfies one of the criteria

specified in paragraph (a) of this section. The provisions set forth in

paragraph (b) of this section also apply to applications for

extensions.

Sec. 563f.7 Change in circumstances.

(a) Termination. A management official shall terminate his or her

service or apply for an exemption to the Interlocks Act if a change in

circumstances causes the service to become prohibited under that Act. A

change in circumstances may include, but is not limited to, an increase

in asset size of an organization, a change in the delineation of the

RMSA or community, the establishment of an office, an acquisition, a

merger, a consolidation, or any reorganization of the ownership

structure of a depository organization that causes a previously

permissible interlock to become prohibited.

(b) Transition period. A management official described in paragraph

(a) of this section may continue to serve the depository institution

involved in the interlock for 15 months following the date of the

change in circumstances. The OTS may shorten this period under

appropriate circumstances.

Sec. 563f.8 Enforcement.

Except as noted in this section, the OTS administers and enforces

the Interlocks Act with respect to savings associations, savings and

loan holding companies, and affiliates of either, and may refer any

case of a prohibited interlocking relationship involving these

institutions to the Attorney General of the United States to enforce

compliance with the Interlocks Act and this part. If an affiliate of a

savings association or savings and loan holding company is subject to

the primary regulation of another Federal depository organization

supervisory agency, then the OTS does not administer and enforce the

Interlocks Act with respect to that affiliate.

Sec. 563f.9 Interlocking relationships permitted pursuant to Federal

Deposit Insurance Act.

A management official or prospective management official of a

depository organization may enter into an otherwise prohibited

interlocking relationship with another depository organization for a

period of up to 10 years if such relationship is approved by the

Federal Deposit Insurance Corporation pursuant to section

13(k)(1)(A)(v) of the Federal Deposit Insurance Act, as amended (12

U.S.C. 1823(k)(1)(A)(v)).

Dated: December 13, 1995.

Jonathan L. Fiechter,

Acting Director.

[FR Doc. 95-30972 Filed 12-28-95; 8:45 am]

BILLING CODES 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P