The FRB recently issued an interpretive letter (the “FRB Letter”) in which the FRB granted an individual director (the “Director”) an exemption from the prohibition of the Depository Institution Management Interlocks Act (the “Interlocks Act”) and the FRB’s underlying Regulation L. The FRB’s exemption allows the Director to serve as a director at a top-tier bank holding company (“BHC A”) and an intermediate holding company for two banks, one in El Paso, Texas and the other in Santa Fe, New Mexico, while at the same time serving as a director of an unaffiliated bank holding company located in High Point, North Carolina (“BHC B”) and its subsidiary bank located in Thomasville, North Carolina.
Under the Interlocks Act and Regulation L, a management official (including a director) of a depository institution or a depository holding company with total assets of more than $2.5 billion may not serve at the same time as a management official of an unaffiliated depository organization with total assets exceeding $1.5 billion regardless of the geographical location of the two organizations (the “Major Assets Prohibition”). As of December 31, 2013, BHC A had total assets exceeding $2.5 billion and BHC B had total assets exceeding $1.5 billion. The FRB, however, may permit a management interlock that would otherwise be prohibited by the Interlocks Act if the FRB determines that the interlock “would not result in a monopoly or in a substantial lessening of competition and would not present safety and soundness concerns.”
In the FRB Letter, the FRB concluded that the proposed interlock would not result in a monopoly or a substantial lessening of competition as the subsidiary banks of BHC A and BHC B do not operate in the same banking markets and because the proposed interlock would not substantially affect competition in nonbanking activities. The FRB further concluded that the proposed interlock would not pose any safety and soundness concerns and that the Director has the necessary background and experience to serve on the applicable boards of directors.
Although the FRB’s conclusions in the FRB Letter do not represent a shift in FRB interpretation of Regulation L, it appears as if the FRB, the FDIC and the OCC are becoming increasingly comfortable with granting well-grounded requests (based upon favorable facts) for exemptions from the restrictions of the Major Assets Prohibition of the Interlocks Act and Regulation L.
