4000 - Advisory Opinions
Sharing a Common Name by Bank and Its Affiliates
September 16, 1987
Pamela E. F. LeCren, Senior Attorney
You have requested on behalf of your client, *** ("Bank") a ruling by the FDIC's legal staff that should the Bank change its name to " Bank & Trust Company" said name change will not cause the Bank and its affiliate, *** *** (as well as other affiliates of the Bank all of which use the word "*** " in their names) to share a common name in violation of section 337.4(c)(5) of the FDIC's regulations. (12 C.F.R. 337.4(c)(5)).
Section 337.4 of the FDIC's regulations ("the securities regulation") generally governs the securities activities of subsidiaries of insured nonmember banks as well as affiliate relationships between insured nonmember banks and securities companies. The securities regulation pertains in major part only to subsidiaries and/or affiliates of insured nonmember banks that engage in securities activities of the type that are prohibited to banks by the Glass-Steagall Act. The securities regulation is designed to protect bank safety and soundness by insulating banks from the financial and other risks that can be associated with securities underwriting and distribution activities as well as to avoid conflicts of interest that may arise therefrom. The securities regulation also seeks to ensure that the legal separateness of an insured nonmember bank from its subsidiary and/or affiliate is maintained in order to avoid violations of Glass-Steagall Act and is designed to prevent public confusion concerning the insured status of investments placed with or through a subsidiary or affiliate of the bank. Such confusion could lead to claims against the FDIC's deposit insurance fund and/or the FDIC as receiver of a closed bank. To these ends, section 337.4 of the FDIC's regulations establishes a number of restrictions and prohibitions among which is the requirement that an insured nonmember bank may not share a "common name or logo" with its securities affiliate or subsidiary if that affiliate or subsidiary engages in securities activities prohibited to banks under the Glass-Steagall Act. Section 337.4 does not define the meaning of the phrase "common name or logo". In essence you have requested an interpretive ruling on the part of the FDIC's legal staff as to whether or not the presence of the word "*** " in the name of an insured nonmember bank and its various affiliates which are engaged in securities activities constitutes the use of a common name in violation of section 337.4.
It is the general opinion of the FDIC's legal staff that what constitutes a "common name or logo" for the purpose of the existing prohibition must be assessed in the context of the overall facts and circumstances. In our opinion the existing prohibition is flexible, i.e. given a certain context a name may be considered to be a common name but, given another context, the same name may be permissible under the regulation. We will of course consider identical names to be common names. Additionally, in keeping with the ordinary meaning of the word "common", we will also consider, subject to a rule of reason, similar but not identical names to be common names for the purposes of the regulation. For example, where a slight variation in the spelling or the wording of a title is such that the title retains a similar sound or obvious identification with the affiliate, or in the case of a subsidiary, obvious identification with the bank, the name would constitute a common name under the regulation.
In many circumstances where one or more identical words appear in the title of a bank and its affiliate and/or subsidiary, the two titles may confuse the public. It is therefore our intent to generally consider two names that share one or more of the same words to be common names except where the major component of the two names consists of a generic or descriptive term not likely to engender customer confusion. In assessing whether or not the use of a shared word is likely to cause customer confusion we will consider such things as the manner in which the services and products of the affiliate or subsidiary and the bank are marketed or promoted, whether or not the shared word, although generic or descriptive, has taken on a secondary meaning readily associated with the affiliate or the bank, and the existence or nonexistence of a shared customer base, joint customer statements, joint solicitations, etc. If the shared word in the two names is a proper name or a name that has taken on a secondary meaning substantially connected in the public mind with the affiliate or the bank, the presence of that shared word will generally result in the conclusion that the two names are common names within the meaning of the regulation.
Furthermore, the use by a bank of its affiliate's initials as its name or part of its name, or the use by a bank's subsidiary of the bank's initials as it name or part of its name, can raise the possibility of confusion in the mind of consumers. It is therefore our opinion that where the initials used have any public or trade identification with the affiliate (or the bank) a name based on those initials would be prohibited. As is the case with initials, the use by a bank of an acronym generally associated with its affiliate or an acronym confusingly similar to its affiliate's name (and the use by the subsidiary of an acronym associated with the bank or any acronym confusingly similar to the bank's name, would be prohibited by the regulation. Lastly we wish to stress that the application of the above standards will be tempered by a rule of reason.
Before going any further with respect to the specific case before us, we wish to remind you that the above staff opinion on the issue of what constitutes a "common name or logo" for the purposes of the prohibition on the use of a common name or logo is subject to modification due to any subsequent action taken by the FDIC's Board of Directors. As you are probably aware, the FDIC requested comments on whether or not to retain, modify or eliminate the common name and logo prohibition in section 337.4 of the FDIC's regulations. (51 FR 29657, August 20, 1986, 52 FR 11492, April 9, 1987). Copy enclosed. Any opinion we offer with respect to an interpretation of the existing prohibition is of course subject to any action the Board of Directors may take with respect to that prohibition. Among other things, the request for comment specifically asked whether or not the phrase "common name" should be defined and what that definition should be. You will note upon a careful review of the proposal that the Board of Directors proposed a series of disclosure requirements that would be triggered by the use of the same or a similar name. The proposal elaborates on this requirement by saying that "any two names that share one or more of the same words. . .will trigger disclosure." Thus, it is conceivable that the Board of Directors may adopt a final amendment that treats two names as similar for the purposes of requiring disclosure when the two names may not have been considered common names for the purposes of the flat prohibition. With this in mind, we will turn to your specific circumstances.
According to the information provided this office (your November 5, 1986 letter and its enclosures, certain supplemental material submitted at the FDIC's request under cover of letter dated November 12, 1986 and your August 17, 1987 letter) the bank's parent, *** is a bank holding company which is primarily engaged through its subsidiaries (other than the bank) in providing distribution services, investment advice, and administrative and management services to various mutual funds sponsored by *** "the *** Group of Funds". Several of the various subsidiaries as well as the 25 mutual funds in the Group all share the word "*** " in their names except for one broker-dealer subsidiary which deals in tax shelters and limited partnership whose title is "*** ". *** also owns *** Trust Company which provides custodial services in connection with *** IRA, Keogh, and 403-B plans and acts as trustee for various other plans and trusts. The information provided to us does not indicate whether or not *** Trust is FDIC insured. The holding company's business is conducted almost entirely from its headquarters in *** and through a small branch office in ***. As of March 19, 1985 there were approximately 575,000 shareholders in the *** Group of Funds the majority of whom resided in ***. The bank has not in the past participated (nor does it plan to in the future) in the marketing or sale of shares in the *** Group of Funds nor is there any interaction between the Bank and the affiliates by way of joint product offerings, back office support, or otherwise. The bank is also fully complying with all of the restrictions of section 337.4(c) pertaining to securities affiliates of insured nonmember banks.
The mutual funds sponsored by *** and to which the holding company provides services are primarily distributed on a wholesale basis through unaffiliated broker-dealers which in turn market the mutual funds on a retail basis. Some shares are sold directly by the funds without the benefit of a broker-dealer. A subsidiary of *** does advertise the availability of shares in the Group of Funds, however, the subsidiary responds to any inquiries it receives from prospective purchasers of fund shares only by mailing a current prospectus to that customer. Any further sales efforts are handled by the independent broker-dealers to whom the inquiry is forwarded and who, as indicated above, market the fund on a retail basis.
On December 19, 1985 the holding company acquired the Bank which prior to the acquisition had been in serious financial condition and suffered a severe capital deficiency. Despite the fact that the Bank has been "restor[ed] . . . to a sound financial condition. . .it is the judgment of Bank's board of directors that it would be in [Bank's] best interest to eliminate through a name change any remaining adverse public perceptions of Bank which were occasioned by its operations and condition under previous ownership."
Your letter urges the FDIC to conclude that the use of the name *** Bank & Trust Company and the name *** as well as the use of the name *** in various subsidiaries of the holding company does not involve the use of a common name in contravention of section 337.4(c)(5). In your opinion the name *** can be considered to be generic in nature due to its association with numerous commercial and financial enterprises. You further indicate that due to the limited role of the holding company and its subsidiaries in dealing with the general public it is highly unlikely that persons who hold or who have purchased or intend to purchase shares from the *** Group of Funds will confuse any products offered by the Bank and shares in the mutual funds or services offered by the holding company or any of the subsidiaries. Additionally, you point out that the name *** is not unique nor is it particularly associated with any one company unlike certain other names prominent in the securities area.
Despite the fact that *** and the *** Group of Mutual Funds appear to be primarily marketed on a regional basis, i.e., *** Bank & Trust with the *** Group of Funds and the various *** subsidiaries, we have concluded that the Bank may change its name to *** Bank & Trust Company without violating the prohibition on the use of a common name. Even though the word "***" could in some sense be considered a proper name, due to its wide use in the banking, financial services, and commercial community we are of the opinion that the word has taken on a broader generic meaning. As the Bank will not participate in any fashion in the marketing or sale of shares in the *** Group of Funds and the distribution of those funds is done primarily on a wholesale basis to unaffiliated broker-dealers who in turn market the funds on a retail basis (there is little or no direct contact between the public and any company in the *** Group) the likelihood of the public associating any *** Mutual Fund with this particular institution bearing the name "*** " is reduced.
In closing we wish to remind you that the above opinion is subject to change depending upon what action, if any, is taken by the FDIC's Board of Directors with respect to the request for comment on the common name or logo prohibition contained in section 337.4.