A current member of the board of directors at First Savings Association (an institution with $150 million in total assets) was a director at First National Bank (an institution with total assets of $200 million) for many years. The two institutions are located in the same town. Before being elected to the board of First Savings, the director retired from the First National board. To honor his years of service with First National, the bank made him a director emeritus for life. He can attend any board meeting but cannot vote. He may speak to matters before the board and receives a director's fee. In actuality, however, the director never attends board meetings. Does this relationship violate Regulation L?
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A. B. C. D.D
Regulation L is a Federal Reserve regulation that sets forth the rules regarding interlocking directorates between depository institutions. The regulation is designed to prevent undue influence by one institution over another through overlapping membership on the board of directors.
Under Regulation L, an individual may not serve as a director of two depository institutions that have offices in the same geographic area unless the following conditions are met:
In this scenario, we know that the two institutions are located in the same town, but we don't have enough information to determine if the other conditions of Regulation L are being met. However, the scenario does provide some specific details about the individual's relationship with the First National Bank and the First Savings Association.
The individual was a director at First National Bank for many years before being elected to the board of First Savings Association. He retired from the First National board and was made a director emeritus for life. As a director emeritus, he cannot vote, but he can attend any board meeting and speak to matters before the board. He also receives a director's fee from First National Bank.
The question asks whether this relationship violates Regulation L. Based on the information provided, we can eliminate answer choices A and B. The fact that the individual does not attend board meetings or cannot vote does not necessarily mean that Regulation L is not being violated.
Answer choice D suggests that the individual is an honorary director, which implies that he does not have any real authority or influence over the board of First National Bank. However, this is not entirely accurate because the scenario states that the individual receives a director's fee from First National Bank. This compensation could potentially create a conflict of interest or give the appearance of impropriety.
Therefore, the correct answer is C, which suggests that the individual's receipt of a director's fee from First National Bank violates Regulation L. This compensation could potentially create a financial interest in First National Bank that could influence the individual's decision-making as a director at First Savings Association.