Regulation L

Regulation L prohibits certain types of interlocking management arrangements for depository institutions and their respective holding companies. The regulation states that a management official of one depository institution may not serve as a manager of an unaffiliated depository institution in the same community. In larger geographic areas, the regulation applies if the institutions in question have at least $50 million in total assets. In addition, managers at banks with $1 billion or more in assets may not serve as management officials at banks with $500 million or more in assets regardless of the location of either.

The purpose of Regulation L is to encourage competition. If a management official serves at two unaffiliated banks in the same community, that may result in collusion on interest rates, fees, and the like. The regulation applies not only to state banks, but to bank holding companies and affiliates.

Some types of interlocking business arrangements have grandfathering periods of up to 10 years. Exceptions are also made in some instances, such as for minority groups or if it is determined that the interlocking management would not have an anti-competitive effect.