I. INTRODUCTION
Federal banking regulatory agencies issued regulations regarding management interlocks. The Depository Institution Management Interlocks Act either prohibits or restricts bank management officials from serving two unaffiliated depository institutions or their holding companies (depository organizations) at the same time.
II. INTERLOCK RESTRICTIONS
Under the joint agency regulations, interlocks are prohibited under the following three instances:
The major assets prohibition threshold is adjusted by federal banking regulators from year-to-year as necessary, based on the annual change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, rounded to the nearest $100 million. The current major assets prohibition states:
A management official of a depository organization with total assets exceeding $10 billion (or any affiliate of such an organization) may not serve at the same time as a management official of an unaffiliated depository organization with total assets exceeding $10 billion (or any affiliate of such an organization), regardless of the location of the two depository organizations.
III. SMALL MARKET SHARE EXEMPTION
So long as a management interlock is not prohibited pursuant to the criteria recited in “II. Interlock Restrictions” above, an interlock is allowed if the depository organizations (and their depository institution affiliates) hold in total, no greater than 20% of the deposits in each RMSA or community in which both depository organizations (or their depository institution affiliates) have an office. The deposit amounts are to be determined annually by the most recent “Summary of Deposits” published by FDIC for the RMSA or community. Each depository organization must keep records to support its eligibility determination for this exemption and must reconfirm its determination annually.
IV. GENERAL EXEMPTION
A. General Exemption by Order
The regulation provides for the application of a “general exemption” however, prior to granting an application for a General Exemption, the appropriate agency must determine that the interlock would not result in a monopoly or substantial lessening of competition and would not give rise to safety and soundness concerns.
B. General Exemption by Presumption
In reviewing an application for a general exemption, the agency must determine if the depository organization (seeking to add a management official): (1) primarily serves to low- and moderate-income areas; (2) is controlled or managed by persons who are members of a minority group or women; (3) is a depository institution that has been chartered for less than two years; or (4) is determined to be in a “troubled condition.”
C. Duration of General Exemption
The rule sets forth limits on the duration of general exemptions. Unless the regulatory agency provides for a specific expiration period in the approval, a general exemption may continue so long as it does not become a monopoly or substantially lessens the competition or is unsafe or unsound. If the regulator grants the exemption in reliance upon one of the four presumptions listed above, the interlock may continue for a period of three years, unless otherwise provided by the agency in writing.
V. CHANGE IN CIRCUMSTANCES (TERMINATION OF EXEMPTION)
The regulation provides that a management official must terminate his or her service or apply for an exemption if a change in circumstances causes the service to be prohibited. Change includes an increase in asset size of an organization, change in the delineation of an RMSA or community, the establishment of an office or an increase in total deposits of a depository institution. Change also includes an acquisition, merger, consolidation or reorganization of the ownership structure of a depository organization that causes a prior permissible interlock to become prohibited.
A management official described above may continue to serve the state bank or bank holding company involved in the interlock for 15 months following the date of the change in circumstances, however, the rule provides that the regulatory agency may shorten this period under appropriate circumstances.
VI. MANAGEMENT CONSIGNMENT EXEMPTION
A. Criteria
The regulations allow the financial institution’s regulator to permit an interlock that otherwise would be prohibited by the Interlocks Act if, after reviewing an application submitted by the depository organization seeking an exemption, determines that the interlock would:
B. Presumptions Applied to Obtain Interlock Exemption
The rule sets 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 § 914 of FIRREA. 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 § 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.”
C. Duration of Interlock Exemption
The rule sets forth limits on the duration of a Management Consignment exemption. The Management Consignment exemption is limited 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. Interested parties must submit an application for an extension at least 30 days before the expiration of the initial term of the exemption and the final rules clarify that the presumptions which apply to initial applications also apply to applications for extension.