| August 13, 1996 |
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Stephen M. Klein, Esquire Re: [Word(s) deleted] Dear Mr. Klein: This is in response to your letter of June 13, 1996, requesting information concerning the application of the Bank Holding Company Act (the "BHC Act") to the potential future acquisition by the [words deleted] ("Tribe") of additional shares of voting stock of [words deleted] ("Bank"), a state nonmenber bank. Tribe proposes to increase its holdings from 4.64 percent to 9.9 percent of Bank's voting stock. In your letter, you requested confirmation that Tribe would not be considered a bank holding company under the BHC Act when it increases its holdings to more than 5 percent, but less than 10 percent of Bank's voting stock. We understand that Tribe is a federally recognized Native American tribal government organized under the Indian Reorganization Act of 1934,1 which is governed by a constitution and by-laws adopted by the Tribe's board of directors. In this case, the Tribe would hold Bank's shares communally for the benefit of the Tribe members. You also have represented that Tribe's shares of Bank are voted by and at the direction of the Tribe's board of directors, as a whole, and that Tribe's ownership and control of the Bank's stock is and would be conducted directly by the Tribe, without an intervening holding company. In two earlier orders, the Board of Governors of the Federal Reserve System concluded that a federally recognized Native American tribe that acquired control of a bank through a registered bank holding company would not itself become a bank holding company.2 In these cases, the Board determined that, as a sovereign entity, the relevant Native American tribe was not intended to be covered by the definition of "company" in the Bank Holding Company Act. In reaching this decision, the Board relied on the status of the tribe as a sovereign Native American tribal government under federal law.3 A determination pursuant to the BHC Act of whether Tribe is a bank holding company can only be made by the Board of Governors. In light of the Tribe's status as a federally recognized Native American tribal government and the proposed structure of Tribe's investment in Bank, however, it appears that Tribe's proposal is consistent with the cases involving Native American tribes discussed above. Based on our understanding of the facts at this time, staff would recommend to the Board that Tribe not be deemed a "company" for purposes of the BHC Act. This exemption for Tribe would not extend to a company or similar organization controlled by Tribe. Accordingly, if a company or similar organization that Tribe controlled owned or controlled Bank, that organization would be a "company" under the BHC Act. Even if the Board determined Tribe to be a "company" under the BHC Act, as we understand the current proposal, Tribe would not become a "bank holding company" because Tribe does not propose to control Bank. In this regard, Tribe proposes to own, in the aggregate, less than 10 percent of the shares of Bank. In addition, Tribe will have only one representative on the board of directors of Bank. Moreover, Tribe has indicated that it does not intend to attempt to exercise a controlling influence over the management or policies of Bank. Assuming these facts and circumstances, staff would recommend to the Board that Tribe not be deemed to control Bank upon Tribe's anticipated increase in ownership of up to 10 percent of Bank's shares. Any changes to the facts presented may affect the views expressed in this letter. This letter expresses no opinion on whether Tribe may be subject to other regulatory requirements, such as the Change in Bank Control Act (12 U.S.C. � 1817(j)), which must be determined by the Federal Deposit Insurance Corporation ("FDIC"), the primary federal supervisor of Bank. If you should have any questions regarding this matter, please contact Pat Robinson (202/452-3005) or John Soboeiro (202/452-3838) of my staff.
Sincerely,
(signed) Scott G. Alvarez
Scott G. Alvarez cc: Federal Reserve Bank of San Francisco
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