§ 589.1 Control of an insured institution by a savings and loan holding company through proxies.

(a) The question has been raised whether, in the Board's view, a bare revocable proxy obtained from the owner of an amount of stock in excess of the statutorily specified percentage constitutes “Control” of an association within the meaning of either the prior or the present definitions of section 408 of the National Housing Act, as amended.

(b) Since the "control" definition provisions, like any statutory provisions, are to be interpreted in the light of the purposes toward which the whole enactment was directed, the Board rules that such a proxy does not constitute "control" of an association unless accompanied by some further indicia of independent power to determine the association's directors or officers or policies. A bare revocable proxy can be canceled at will and without adverse legal consequences by the stockowner who gave the proxy; the proxy holder is his agent and subject to his control and direction. Under such circumstances, the proxy holder does not control the association.

(c) Other circumstances, however, when added to mere possession of a proxy, may be enough to show that the holder is in control of the institution. If the proxy is irrevocable for a certain period, or has been already exercised to change the composition of the directors or officers or otherwise to affect the policies and decisions of the institution, or numerous proxies have been obtained from a large number of scattered and uncoordinated small owners, then there is a basis for finding control in the proxy holder.

(d) While the definition sections in the old and new statutes specify the amount of stock which will be deemed to confer control over the association, they do not undertake to define what constitutes control over stock. The latter remains primarily a matter for factual inquiry, if there is some question about it in a particular case.

(e) It might be argued that since the amended "control" definition expressly refers to the holding of proxies, it

must be construed as requiring that even a bare revocable proxy from a single majority stockholder to his nominee has to be viewed as transferring control over the association to its possessor. Such a construction would, of course, be completely contrary to the facts of actual control and therefore inconsistent with the purposes of the statute. For example, the statute is intended to protect the insured institution from being required to enter into disadvantageous transactions with the company which exercises control over it, and subjects that company to various examination and reporting requirements as a precaution against its abusing its power. All of this is quite unnecessary if the proxyholder-company has no power to do anything except vote as the person running the insured institution instructs it.

(f) Hence the reference in section 408(a)(2)(A) of the Act, as now in force, to holding proxies, like the rest of the provision, is construed by the Board to require some showing of a reasonable possibility for the exercise of actual control over the requisite amount of stock.

(Secs. 402, 403, 48 Stat. 1256, 1257, as amended; sec. 408, 73 Stat. 691, as amended, 82 Stat. 5; 12 U.S.C. 1725, 1726, 1730a, Reorg. Plan No. 3 of 1947; 3 CFR, 1943-48 Comp., p. 1071)

[33 FR 12822, Sept. 11, 1968]

§ 589.2 Nonexempt reorganization involving formation of a savings and loan holding company.

(a) Section 408(e)(1)(B)(ii) of the National Housing Act, as amended, exempts from the requirement of prior written approval of the Federal Savings and Loan Insurance Corporation the acquisition by any company, other than a savings and loan holding company, of one or more insured institutions in connection with a reorganization in which a person or group of persons, having had control of an insured institution for more than 3 years, vests control of that institution in a newly formed holding company subject to the control of the same person or group of persons.

(b) The absence of a definition in the statute of the term "reorganization" as used in section 408(e)(1)(B)(ii) has given rise to questions as to the scope of the exemption created by this provision. The Board, as the operating head of the corporation, therefore rules, on the basis of the legislative history of the statute and other relevant considerations, that this exemption does not apply to an acquisition of an insured institution involving more than a simple transfer of control of an insured institution to a newly formed holding company by an individual or group of individuals who previously controlled the insured institution for more than 3 years and who control the newly formed holding company.

(c) For example, the exemption created by section 408(e)(1)(B)(ii) does not include an acquisition of an insured institution by a newly formed holding company which assumes, in connection with such acquisition, any debt of the individual or group of individuals controlling such insured institution, notwithstanding that any such assumption of debt by such company would not require prior approval of the corporation under the provisions of section 408(g) of the Act, as amended. Whether other transactions which result in the formation of a new savings and loan holding company constitute an exempt "reorganization" within the scope of section 408 (e)(1)(B)(ii) will be determined on a case-by-case basis.

(Sec. 402, 48 Stat. 1256, as amended, sec. 408, 48 Stat. 1261, as added by 73 Stat. 691, as amended; 12 U.S.C. 1725, 1730a. Reorg. Plan No. 3 of 1947, 3 CFR, 1943-48 Comp.) [35 FR 8879, June 9, 1970]

§ 589.3 Interpretation of the term "service corporation".

(a) Paragraphs (d)(1) and (d)(4)(B) of section 408 of the National Housing Act, as amended, exclude "service corporations" from the prohibitions applicable to certain transactions between insured institution subsidiaries of savings and loan holding companies

and other affiliates of such companies. The absence of a definition in the Act of the term "service corporation" has given rise to questions concerning the scope of these exceptions.

(b) The Board, as the operating head of the Corporation, hereby determines, pursuant to section 408(h) of the Act, that the term "service corporation", as used in said section 408 and this subchapter, refers to a corporation of the type in which a Federal savings and loan association may invest pursuant to § 545.9-1 of this chapter.

(c) Subsidiary insured institutions may therefore invest in service corporation affiliates to the same extent, and subject to the same limitations, that Federal associations may invest in service corporations under § 545.9-1 of this chapter. Consequently, a service corporation which is an affiliate of a subsidiary insured institution must obtain Board approval to engage in any activity not preapproved by § 545.9-1 of this chapter for service corporations in which Federal associations may invest. If such approval is not obtained but the activity is nonetheless engaged in by such service corporation, then the subsidiary insured institution must dispose of its investment in such service corporation on the same basis that would be required of a Federal association in similar circumstances under § 545.9-1(e) of this chapter. Furthermore, the effect of § 589.3 and section 408(d)(1) is not limited to the need to apply for approval of activities. Investment by a subsidiary insured institution in an affiliated service corporation is prohibited by § 589.3 and by section 408(d)(1) unless all of the provisions of § 549.9-1 of this chapter are met. This applies to investments by insured institutions which are subsidiaries of either multiple or unitary holding companies.

(Sec. 402, 48 Stat. 1250, as amended, sec. 408, 48 Stat. 1261, as added by 73 Stat. 691, as amended; (12 U.S.C. 1725, 1730a), Reorg. Plan No. 3 of 1947, 12 FR 4981, 3 CFR 194348 Comp., p. 1671)

[39 FR 37054, Oct. 17, 1974]

600.30 Federal land bank associations. 600.40 Federal intermediate credit banks. 600.50 Production credit associations. 600.60 Banks for cooperatives.

AUTHORITY: Secs. 5.9, 5.18, 5.26, 85 Stat. 619, 621, 624; 12 U.S.C. 2243, 2252, 2001 nt. SOURCE: 37 FR 11408, June 7, 1972, unless otherwise noted.

Subpart A-Farm Credit Administration

§ 600.1 Farm Credit Administration.

The Farm Credit Administration is an independent agency in the executive branch of the Government. It consists of the Federal Farm Credit Board, the Governor, and other officers and employees. The central offices of the Farm Credit Administration are located in Suite 4000, 490 L'Enfant Plaza East, SW., Washington, D.C. Its mailing address is Farm Credit Administration, Washington, DC 20578. The hours of business are 8 am-4:30 pm Monday through Friday, excluding holidays.

[41 FR 15835, Apr. 15, 1976]

§ 600.2 Federal Farm Credit Board.

The Federal Farm Credit Board is a part-time, policymaking board which consists of 13 members, 12 of whom are appointed by the President with the advice and consent of the Senate. In making the appointments, one from each of the 12 Farm Credit districts, the President receives and considers nominations from each district by the

Federal land bank associations, the production credit associations and the stockholders of the banks for cooperatives. The 13th member of the Board is designated by the Secretary of Agriculture as his representative on the Board. The Federal Farm Credit Board establishes the general policy for the guidance of the Farm Credit Administration and approves the rules and regulations which implement applicable laws.

§ 600.3 Governor.

The Governor of the Farm Credit Administration is its chief executive officer. He is appointed by the Federal Farm Credit Board, and serves at its pleasure. During any period in which the Governor holds any stock in any of the institutions subject to supervision of the Farm Credit Administration, the appointment of the Governor shall be subject to approval by the President and during any such period the President shall have the power to remove the Governor. On December 31, 1968, the Government capital then remaining in the banks and associations was retired. Under the general supervision of the Federal Farm Credit Board, the Governor is responsible for the execution of laws creating the powers, functions, and duties of the Farm Credit Administration. The Farm Credit Administration makes no loans. All inquiries which concern the obtaining of loans should be addressed to the banks and associations described in §§ 600.20–600.70.

§ 600.4 Deputy Governors.

The Governor of the Farm Credit Administration is assisted in executing his responsibilities by Deputy Governors appointed by him. The Governor and the Deputy Governors comprise the Executive Staff of the Farm Credit Administration.

(a) The Office of Credit and Operations, headed by a Deputy Governor, regulates and supervises the extension and administration of credit by, and