Management Interlocks

Management Interlocks

Comptroller's Licensing Manual

Washington, DC
September 2002

Management Interlocks

Table of Contents

Introduction
Prohibitions
Exemptions
Statutory Exemptions
Regulatory Exemptions
Key Policies5
Decision Criteria
Background Investigations
Application Process
General
General Exemption Filing
Presumptions of No Adverse Effect on Competition Filing
Change in Circumstances
Time Frame
Additional Information Request
Procedures
Glossary
References

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Introduction
The Depository Institution Management Interlocks Act (Interlocks Act)
generally prohibits a bank or bank holding company management official
from simultaneously serving as a management official of an unaffiliated
depository institution or depository institution holding company.
There are certain exemptions from these interlock prohibitions. Some
management interlocks are exempted by statute and some qualify for
exemption under the OCC’s regulation without filing an application. Other
interlocks may be exempted if the OCC approves a specific application. The
OCC may exempt a prohibited management interlock if it determines that
dual service would not result in a monopoly or substantial lessening of
competition and would not present safety and soundness concerns.
OCC regulations provide for two broad categories of permissible exemptions:
the Small Market Share Exemption and the General Exemption. The Small
Market Share Exemption applies to depository organizations with limited
control of an area’s deposits. This exemption does not require an application
or prior OCC approval. Under the General Exemption, the OCC may,
through the application process, exempt a management official’s service that
the Interlocks Act otherwise would prohibit.
This booklet summarizes the conditions under which an interlock occurs
under the Interlocks Act, 12 USC 3201-3208, and the criteria the OCC uses to
grant an exemption. Banks interested in establishing a management interlock
should review the OCC’s regulation, 12 CFR 26, Management Official
Interlocks, before submitting a request for an interlock exemption.
Specifically, this booklet:
•

Provides guidance on when an Interlocks Act prohibition is created.

•

Summarizes permitted Interlocks Act exemptions for persons and
organizations.

•

Outlines the OCC’s application process for persons seeking interlock
exemptions.

•

Includes a glossary of terms, a reference section of statutes and
regulations, and electronic links to sample filings for applicants.

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Prohibitions
The scope of the interlock prohibition depends on the size and location of the
organizations involved. Three specific situations always prohibit a
management interlock:
•

Community Prohibition — If both organizations, or any of their
depository institution affiliates, have a main or branch office in the same
community, they may not have a management interlock regardless of
their size.

•

Relevant Metropolitan Statistical Area (RMSA) Prohibition — If both
depository organizations, or any of their depository institution affiliates,
have total assets of $20 million or more, they may not have a
management interlock in the same RMSA.

•

Major Assets Prohibition — If a bank or a bank holding company has
assets of at least $2.5 billion, anyone who is a management official of the
bank or the bank holding company, or any of its affiliates, may not serve
at the same time as a management official of any unaffiliated bank or
bank holding company with total assets exceeding $1.5 billion or any
affiliate of such bank or bank holding company, regardless of their
locations.
The OCC and the other federal financial regulatory authorities1 may
adjust these thresholds periodically. If a threshold is adjusted, the
regulatory authorities will provide appropriate notice of those changes to
depository organizations by publishing a notice in the Federal Register.
The OCC will update this booklet at the end of the calendar quarter
following such publication.

Exemptions
Statutory Exemptions
The Interlocks Act permits several specific exemptions from the general
interlocks prohibitions. Under these statutory exemptions, the Interlock Act
permits a management interlock for the following organizations and persons:
•

1

A depository organization that is placed formally in liquidation, under
receivership or conservatorship, or in similar circumstances.

The other federal financial regulatory authorities include the Board of Governors of the Federal
Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, and
the Office of Thrift Supervision.
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•

A corporation operating under section 25 or 25A of the Federal Reserve
Act (Edge Act and Agreement Corporations).

•

A credit union being served by a management official of another credit
union.

•

A depository organization that does not conduct business in the United
States, except as incidental to its activities outside of the United States.

•

A state-chartered savings and loan guaranty corporation.

•

A Federal Home Loan Bank or any other bank organized solely to serve
depository institutions (for example, a bankers’ bank) or solely to provide
securities clearing services and related services for depository institutions
and securities companies.

•

A depository organization that is closed or which the regulatory authority
finds to be in danger of closing and is acquired by another depository
organization. This exemption lasts five years from the date of acquisition.

•

A diversified savings and loan holding company, whose director serves
simultaneously as a director of an unaffiliated depository organization.
For this exemption, both the savings and loan holding company and the
depository organization must notify their appropriate regulatory agencies
at least 60 days before beginning the dual service. This exemption is
allowed if the agencies do not disapprove the dual service before the end
of the 60-day period.

•

A person whose dual service as a management official of more than one
depository organization began before November 10, 1978.

Regulatory Exemptions
The Interlocks Act provides a general authority for the OCC to establish
exemptions through its regulations. By regulation, the OCC may exempt an
otherwise prohibited management interlock if it determines that dual service
would not result in a monopoly or substantial lessening of competition and
would not present safety and soundness concerns to the bank.
The regulations provide for two broad categories of permissible exemptions:
the Small Market Share Exemption and the General Exemption.
Small Market Share Exemption
The regulation permits an exemption for interlocks involving two unaffiliated
depository organizations that together control no more than 20 percent of
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deposits in any RMSA or community in which the organizations or their
depository institution affiliates have offices. No prior OCC approval is
required to claim the small market share exemption, under 12 CFR 26.5.
Financial institutions seeking to form an interlock pursuant to the small
market share exemption must determine their eligibility by using deposit
share data published by the FDIC in its Summary of Deposits for the RMSA or
community.
The small market share exemption continues to apply for as long as the
organizations meet the applicable conditions. Although no filing is required
for the small market share exemption, each depository organization using this
exemption must maintain records to support its determination of eligibility for
the exemption. A bank may meet this record requirement by documenting
the determination of eligibility in the board of directors’ minutes. The OCC
will confirm the bank’s determination through the supervisory process.
General Exemption
The OCC may permit an exemption, under its general regulatory authority, if
it finds that the interlock will not result in a monopoly or substantial lessening
of competition and will not present safety and soundness concerns for the
institutions involved.
To request an exemption for an interlock under the general exemption
provision, the filer must submit an application to the OCC demonstrating that
the proposed management interlock would not result in a monopoly or a
substantial lessening of competition and would not present safety and
soundness concerns. This interlock exemption continues as long as the
circumstances do not change; that is, it will not result in a monopoly,
substantial lessening of competition, or become unsafe or unsound.
Presumption of No Adverse Effect on Competition: The OCC’s regulations
provide that in certain instances where a general exemption is sought, the
agency will apply a rebuttable presumption that an interlock will not result in
a monopoly or substantial lessening of competition. Under the OCC’s
regulation governing the General Exemption, 12 CFR 26.6(b), these instances
include a depository institution seeking to add a management official when it:
•

Serves primarily low- or moderate-income areas.

•

Is controlled or managed by members of a minority group or women.

•

Has been chartered for less than two years.

•

Is deemed to be in “troubled condition” by the OCC.

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An institution that believes it qualifies for one of the presumptions under 12
CFR 26.6(b) must submit an application demonstrating that the management
interlock will not present a safety and soundness concern to the bank and that
the depository institution fits into one of the four categories of institutions
previously listed. The OCC may request any additional information it needs.
Once an applicant demonstrates that one of the presumptions exists, the OCC
requires no additional information concerning the interlock’s effect on
competition. The OCC will not issue an exemption under this provision if it
finds that the interlock would result in a monopoly or substantial lessening of
competition.
An interlock permitted in accordance with the presumption at 12 CFR 26.6(b)
may continue for three years, unless the OCC has provided otherwise in
writing. A national bank may file for an extension of such an interlock or,
alternatively, use any other exemption for which it qualifies.

Key Policies
Decision Criteria
The OCC may reject a request for a management interlock exemption, under its
general exemptive authority, if it finds that:
•

The interlock would tend to create or result in a monopoly or further any
monopoly.

•

The interlock may lessen competition substantially or restrain trade.

•

The interlock would create a conflict of interest for the proposed
management official.

•

The proposed management official’s competence, experience, or
integrity, including history in dealing with regulatory authorities, indicates
that the interlock will not present safety and soundness concerns.

•

The application does not provide the OCC with all requested information.

Background Investigations
The OCC investigates the competence, experience, and integrity of each
person who is the subject of an application for a management interlock
exemption. To conduct background investigations, the OCC requires the
institution to submit the biographical portion of the Interagency Biographical
and Financial Report Form on the management official creating the interlock.
The OCC may grant a waiver of this requirement, if it obtains sufficient
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information from a written record of recent management history from another
regulated depository institution.
If the person is serving as a management official of a state-chartered bank,
thrift institution, or credit union, the OCC will contact other financial
regulatory agencies (that is, the Federal Deposit Insurance Corporation,
Federal Reserve, Office of Thrift Supervision, National Credit Union
Administration, or state financial regulator) and inquire into that agency’s
experience with the proposed management official.

Application Process
General
Unless the interlock falls under the small market share exemption or any of
the statutory exemptions, a bank must submit an application for a
management interlock exemption to the licensing manager at the appropriate
district office. After determining that there is sufficient information, the OCC
will make a decision on the management interlock application.

General Exemption Filings
National banks filing an application for an exemption, pursuant to the OCC’s
general exemptive authority under 12 CFR 26.6(a), must include:
•

The biographical portion of the Interagency Biographical and Financial
Report Form on the management official, unless the OCC grants a waiver
based on the written record of recent previous management experience in
another depository institution (see “Background Investigations” booklet).

•

Market share data and other information demonstrating that the interlock
will not result in a monopoly or substantial lessening of competition.
This date should also include any expansion, merger, or growth plans of
either depository organization.

•

Information demonstrating that the interlock will not adversely affect the
bank’s safety and soundness.

Presumptions of No Adverse Effect on Competition Filings
National banks seeking an exemption under the OCC’s general exemptive
authority and believing they fit within one of the presumptions set out in 12
CFR 26.6(b) must include:
•

Information demonstrating that the national bank serves primarily lowand moderate-income areas; is controlled or managed by women and/or
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minorities; has been chartered for less than two years; or is in “troubled
condition” as defined in 12 CFR 5.51(c)(6).
•

The biographical portion of the Interagency Biographical and Financial
Report Form on the management official creating the interlock, unless the
OCC grants a waiver because of a written record of recent previous
management experience in another depository institution (see
"Background Investigations" booklet).

•

Information demonstrating that the interlock will not affect adversely the
bank’s safety and soundness.

Change in Circumstances
A management official must terminate his/her service or apply for an
exemption if a change in circumstances causes the service to become
prohibited. Depository organizations must address the prohibited interlock
within 15 months of the change or such shorter period as the OCC directs. A
change in circumstances affecting interlock status may include:
•

An increase in an organization’s asset size (see previous discussion of
asset size at “Prohibitions” section of this booklet).

•

A change in the delineation of the RMSA, or community serving two
institutions in the same RMSA or community, and creating an interlock.

•

The establishment of an office, resulting in the same management serving
two institutions in the same RMSA or community, and creating an
interlock.

•

An acquisition, merger, consolidation, or any reorganization of the
ownership structure of a depository organization (see “Business
Combinations”) that causes a previously permissible interlock to become
prohibited.

•

For interlocks created under the small market share exemption, any event
(such as an expansion or merger) that causes the level of deposits to
exceed 20 percent of the total deposits in an RMSA or community, as
appropriate.

Time Frame
Within 30 days of receipt, the OCC will review the request to determine if the
proposed candidate meets the legal requirements for a particular exemption.

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Additional Information Request
The OCC will notify the applicant if additional information is required to
make the decision. The letter will note a due date for response. The OCC
may disapprove an application if the applicant fails to provide the requested
information.
If an applicant cannot submit the additional information on or before the
deadline, it should contact the OCC as soon as possible. Generally, the OCC
will consider the application abandoned if the information is not received
within 60 days. At that time, the OCC will notify the applicant of the
withdrawal.

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Procedures
Prefiling
Licensing Staff
1.

Refers a bank requesting an exemption for a management interlock to the
“General Policies and Procedures” booklet, “Background Investigations”
booklet, and to this booklet of the Comptroller's Licensing Manual.

2.

If requested, arranges a prefiling meeting with the applicant to review
possible interlocking relationships or to seek an exemption and to discuss
the factors that may influence the OCC’s review of the application. Invites
the appropriate OCC staff (for example, legal and supervision) to the
meeting. Determines if the application should be filed with the
Headquarters Licensing (HQ LIC), if broad issues are involved.

3.

Prepares summary memorandum on all prefiling communications,
meetings, and policy or legal issues raised. Retains all pertinent
information in the pending file.

Filing the Application
Bank
4.

Submits a complete application to the licensing manager in the
appropriate district office, or if so instructed, directly to HQ LIC.

Receipt of Application
Licensing Staff
5.

Initiates and enters appropriate information into the Corporate Activities
Information System (CAIS).

6.

Establishes the official file to maintain original documents.

7.

Notifies the appropriate assistant deputy comptroller/examiner-in-charge
(ADC/EIC) and/or the portfolio manager of receipt of the application.

Review
8.

For General Exemption filings — Reviews the application and any other
relevant information about the bank to determine whether:
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• The application contains all necessary information to reach a
decision. If not, requests the necessary information from the bank,
specifying a response date.
• If a Presumptive filing, reviews the filing and any other relevant
information about the bank to determine if the bank qualifies for a
presumption and, therefore, that the interlock will not affect
competition adversely. To qualify for an exemption, a bank must
be:
– Located in, and serving primarily, low- or moderate-income areas.
– Controlled or managed by women or members of a minority group.
– A newly chartered depository institution.
– In troubled condition as defined by 12 CFR 5.51(c)(6).
9.

Within five business days of receipt:
• Acknowledges receipt of the application and advises the applicant
of the decision target date and CAIS control number.
• Solicits comments from the appropriate ADC/EIC and/or portfolio
manager and any other OCC divisions, as appropriate, with
preliminary responses required within 15 days after the receipt date.
• If a legal issue is identified, forwards relevant material to the Law
Department and requests a response on whether a significant legal
issue is present within 15 days after receipt date.

10.

Conducts a background investigation to assess the competence and
experience of the proposed management official, if appropriate. (Refers to
“Background Investigations” booklet.)

11.

If at any time the filing presents significant policy, legal, or supervisory
issues, contacts Headquarters Licensing (HQ LIC) to decide:
• Whether specific issues should be carved out for HQ LIC action,
while the application continues to be processed in the appropriate
district office.
• When the application should be forwarded to HQ LIC, if
appropriate.

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12.

Reviews the file, prepares the confidential memorandum, makes a
recommendation, and forwards the official file to the appropriate official for
decision. The confidential memorandum should:
• Summarize the applicant’s competence, experience, and integrity
to act as a management official of a national bank.
• Address whether or not the interlock will create a conflict of
interest for the proposed management official.
• Address the regulatory criteria and supervisory concerns.
–

Competitive aspects that may have an adverse effect on
competition.

–

Plans for an expansion, merger, or growth.

–

Any safety and soundness concern.

• Discuss the assessment of any adverse information received from
background investigations and the person’s response.
• Discuss whether the interlock will have a negative effect on the
bank’s safety and soundness.
• Determine if the interlock will result in a monopoly or substantial
lessening of competition.
• If reviewing a Presumptive Filing, discuss whether the applicant
qualifies for a presumption and if the OCC concurs. If the OCC
does not concur, discuss reasons.
13.

Decides the application under delegated authority or forwards the
official file to HQ LIC. Goes to step 15, if the application is referred to
HQ LIC.

14.

After a decision is made:
• Notifies appropriate ADC/EIC and/or the portfolio manager of the
decision by forwarding updated CAIS comments and advises of any
concerns.
• Notifies the bank and sends a decision letter and, if appropriate, a
Customer Satisfaction Survey.
• Notifies interested parties of the decision.
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HQ LIC
15. For applications processed in HQ LIC, makes appropriate CAIS entries.
16. Reviews the file, all relevant information, and solicits comments from
other OCC divisions, as appropriate.
17. If disapproval is recommended or if rebutting a presumption, forwards the
draft decision letter to the Litigation and the Enforcement and Compliance
Divisions for review prior to routing for decision.
18. Prepares and sends the confidential memorandum and decision or rebuttal
letter to the appropriate delegated official for decision.
19. After the decision is made:
• Notifies the bank, the district licensing staff, and the appropriate
ADC/EIC and/or the portfolio manager of the decision by forwarding
updated CAIS comments and advises of any concerns.
• Sends the bank a decision letter and, if appropriate, a Customer
Satisfaction Survey.
• Notifies all interested parties.

Close Out
20. Reviews the file for completeness and forwards the official file to Central
Records.

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Glossary
An affiliate of a depository institution, as defined in 12 USC 3201(3),
generally, is any company controlled by the same stockholders that control
the depository organization.
An anticompetitive effect means a monopoly or substantial lessening of
competition, as derived from the Bank Merger Act.
The area median income is the median family income for the metropolitan
statistical area (MSA) in which an institution is located or the statewide
nonmetropolitan median family income if the institution is located outside an
MSA.
A community is a city, town, or village, and its contiguous or adjacent cities,
towns, or villages.
Contiguous or adjacent cities, towns, or villages are cities, towns, or villages
whose borders touch each other or 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.
A depository holding company is a bank holding company or a savings and
loan holding company having its principal office located in the United States.
Generally, a company qualifies as a depository holding company, if it owns,
controls, or has power to vote at least 25 percent of the voting shares of a
bank or savings association, controls the election of a majority of directors or
trustees of the bank or savings association, or otherwise is found to exercise a
controlling influence over the management or policies of the bank or savings
association.
A depository institution is a commercial bank, a savings bank, a trust
company that takes deposits from the public, a savings and loan association, a
building and loan association, a homestead association, a cooperative bank,
an industrial bank, or a credit union. Additionally, a branch or agency office
of a foreign commercial bank located in the United States is a depository
institution.
A depository institution affiliate is a depository institution that is an affiliate
of a depository organization.
A depository organization is a depository institution or a depository holding
company.

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Immediate family means spouse, mother, father, child, grandchild, sister,
brother, or any of their spouses, whether or not any of the shares are held in
trust. Shares held by a person include shares held by members of his/her
immediate family.
An interlock exists when a management official serves two unaffiliated
depository organizations at the same time.
A low- and moderate-income area is a census tract (or, if an area is not in a
census tract, a block numbering area delineated by the United States Bureau
of the Census) in which the median family income is less than the area
median income.
A management official, for Interlock Act purposes, includes a senior
executive officer, a director, an advisory or honorary director of a depository
institution with total assets of $100 million or more, a branch manager, a
trustee of a depository organization under the control of trustees, and any
person who has a representative or nominee serving in any of those
capacities.
A newly chartered institution is an institution that has been chartered for less
than two years from the time it files a request for exemption.
An office is a principal or branch office of a depository institution located in
the United States, but not a representative office of a foreign commercial
bank, an electronic terminal, or a loan production office.
A relevant metropolitan statistical area (RMSA) is an MSA, a primary MSA,
or a consolidated MSA that is not comprised of designated primary MSAs, as
those terms are defined and applied by the Office of Management and
Budget.
Representative or nominee is a natural person who serves as a management
official and has an obligation to act on behalf of another person for
management responsibilities.
A senior executive officer means the chief executive officer, chief operating
officer, chief financial officer, chief lending officer, chief investment officer,
and any other person the OCC identifies to the national bank who exercises
significant influence over, or participates in, major policymaking decisions of
the bank without regard to title, salary, or compensation. The term also
includes employees of entities retained by a national bank to perform such
functions in lieu of directly hiring the persons, and a federal branch operated
by a foreign bank, the person functioning as the chief managing official of the
federal branch.
Total assets are assets measured on a consolidated basis and reported in the
most recent fiscal year-end Consolidated Report of Condition and Income.
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A national bank is in troubled condition if it has a composite CAMELS rating
of 4 or 5; is subject to a cease and desist order, a consent order, or a formal
written agreement, unless otherwise informed in writing by the OCC; or the
OCC has informed the bank that as a result of an examination, it has been
designated in troubled condition.

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References
Change in Directors and Senior Executive Officers
Laws
12 USC 93a, 1831i
Regulations
12 CFR 5.20, 5.51
Depository Institution Management Interlocks Act
Law
12 USC 3201-3208
Regulation
12 CFR 26
Directors
Citizenship Requirement
Law
Convicted of a Crime
Law
Election
Law
Engaged in Underwriting
Law
Extensions of Credit
Law
Regulations
Filling Vacancies
Regulation
Golden Parachute
Regulation
Interest Rates to Directors
Law
Liabilities of Directors
Law
Loans to Executive Officers
Law
Number of Directors
Law
Oath
Law
Issuance

12 USC 72
12 USC 1829
12 USC 71
12 USC 78
12 USC 375b
12 CFR 31 and 215
12 CFR 7.2007
12 CFR 359
12 USC 376
12 USC 503
12 USC 375a
12 USC 71a
12 USC 73
Charter Application, Oath of
the Director

President
Law
Regulation
Purchase from or Sale to Director
Law
Quorum of Board
Regulation
Reporting Requirements
Law

12 USC 76
12 CFR 7.2012
12 USC 375
12 CFR 7.2009
12 USC 78(p)
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Residency
Law
Qualifications
Law
Regulation
Vacancy on Board
Law

12 USC 72
12 USC 72
12 CFR 7.2005
12 USC 74

Edge Act and Agreement Corporations
Law
Organization of a National Bank
Law
Regulation

12 USC 601-604a
12 USC 611-631
12 USC 21
12 CFR 5.20

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