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Each depositor insured to at least $250,000 per insured bank

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4000 - Advisory Opinions


Regulation O: Applicability

FDIC-79-1

February 25, 1979

Pamela E. F. LeCren, Attorney

At your request, the Legal Division of the Washington Office has reviewed the opinion written by yourself addressed to *** relating to the application of Federal Reserve Regulation O (12 CFR Part 215) to *** State Bank, *** Credit Corporation (***) and *** Incorporated (***). According to your letters of May 22, 1979 and June 21, 1979 to ***, the facts relating to *** Bank currently are as follows. Five brothers and sisters in the *** family own 84.2% of the stock of ***. Only *** owns, controls, or has the authority to vote more than 18% of the voting stock of *** 1 and is thus a principal shareholder. The same five persons own *** (at least 10% of the stock each). All five serve as directors on the board of directors of ***. *** owns 100% of the stock of ***. *** is Executive Vice President of ***. *** is Senior Vice President of ***. *** is President of ***.

We agree with your determination that *** are executive officers of the bank under § 215.2(d) of the regulation.2 As executive officers, their loans from *** personally and to their related interests, are generally limited to 10% of the bank's capital and unimpaired surplus.

We also agree with your determination that *** is a related interest of all three of these persons. Section 215.2(d) and (k) read together define a related interest to be a company controlled by a person i.e., a company with regard to which a person directly, indirectly, or in concert with others either (1) owns, controls, or has the power to vote 25% of the voting stock of the company, (2) controls in any manner the election of a majority of the directors of the company, or (3) has the power to exercise a controlling influence over the management or policies of the company. A person will be presumed to have control of a company including the power to exercise a controlling influence over the company if he/she serves as a director or executive officer of the company and owns, controls, or has the power to vote 10% or more of the stock of the company. Having met both requirements, the presumption that *** is controlled by *** is operable. Thus, any loans from *** to each of them must be aggregated with loans to *** in order to determine if the ceiling on loans to insiders has been exceeded. Because *** owns 100% of the stock of *** and because *** are presumed to control *** they are also presumed to control ***. Thus, *** and are related interests of all three.

We have not received any information that in our opinion would rebut the presumption regarding the control of ***. *** in his letter to you dated June 13, 1979 indicated that in his opinion control of *** is vested in him because he is the owner of a greater percentage of stock of *** than any other stockholder and because *** had authorized him to represent the control interest of *** in ***. These facts do not alter our opinion regarding *** as more than one individual may control a company under Regulation O. Section 215.2(b)(2)(i) and (ii) which set out the two control presumptions of the regulation are not, in our opinion, mutually exclusive.3

We are unable to say that the authorization for *** to represent *** interest in *** is sufficient to rebut the presumption that *** controls *** and thus that those who control *** in turn control ***. Even if the authorization irrevocably placed total control over *** stock in *** the family and business relationship would strongly weigh against any determination that control had been shifted. If however, the authorization named an independent agent, the presumption may be successfully rebutted.

1 A*** is located in a town with a population of less than 30,000. Other members of the *** family individually own stock in amounts of less than 18%. As there is no evidence that these family members act in concert to vote more than 18% of the stock, they are not considered individually to be principal shareholders. Go back to Text

2 We note that *** is not longer an executive officer under that provision as a result of the board of director's resolution on June 12, 1979 to exclude him from participating in any major policymaking functions of the bank. Go back to Text

3 Section 215.2(b)(2)(ii) presumes a person to have control of a company if that person owns, controls or has the power to vote more than 10% of the voting stock of the company and no stockholder owns, controls, or has the power to vote a greater percentage of the stock. Go back to Text


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