BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D. C. 20551

J VIRGIL MATTINGLY. JR.

general counsel

April 14, 1989

John A. Franco

Vice Chairman and

President - Accumulation and Investment Group

Capital Holding Corporation

680 Fourth Avenue

P.O. Box 32830

Louisville, Kentucky 40232

Dear Mr. Franco:

This will respond to your request that the Board of

Governors not disapprove a notice, filed pursuant to section 5

of the Management Interlocks Revision Act of 1988 ("Interlocks

Revision Act") (Pub. L. No. 100-650 § 5 (to be codified at 12

U.S.C. § 3204(8)), on behalf of Capital Holding Corporation,

Louisville, Kentucky ("Capital"). Capital is a diversified

savings and loan holding company and the parent company of

Peoples Security Life Insurance Company, Durham, North Carolina

("Peoples'") . Under your proposal, Mr, Richard W. Wright, who

serves as the chairman, president and chief executive officer

of Peoples, would also serve on the board of directors of

C.C.B. Financial Corporation, Durham, North Carolina

("C.C.B."), a bank holding company registered under the Bank

Holding Company Act.

Before the enactment of the Interlocks Revision Act,

the Depository Institution Management Interlocks Act

("Interlocks Act") (12 U.S.C. § 3201 et seq.) generally

prohibited director, officer, and other management interlocks

between unaffiliated depository organizations, or the

affiliates of these unaffiliated organizations, if one of the

organizations has total assets in excess of $1 billion and the

other organization has total assets in excess of $500 million.

Section 5 of the Interlocks Revision Act amended this

prohibition by authorizing a limited exception to permit

directors of diversified savings and loan holding companies to

serve as directors of depository organizations under certain

ci rcumstances.

The express language of thia exception applies only to

directors of a diversified savings and loan holding company who

propose to serve also as directors of another unaffiliated

depository organization. The exception does not by its terms

permit interlocks involving officers or other management
officials of a diversified savings and loan holding company.

The legislative history of the Interlocks Revision Act supports

a strict reading of the terns of the statute and states that

the diversified savings and loan holding company exception is a

"very limited exception." 134 Cong. Rec. H9796 (daily ed.

October 6, 1988) (statement of Rep. st Germain). Accordingly,

it is my view that the exception provided in the Interlocks

Revision Act does not extend to directors who are also officers

or employees of a depository organization or its subsidiaries,

In addition, the language of section 5 of the

Interlocks Revision Act states that it applies only to "[a]

diversified savings and loan holding company , . . with respect

to the service of a director of such company. . . . (emphasis

added)." Based upon the legislative history of the Interlocks

Revision Act and a strict reading of the language of the

exception, it is also my view that the exception applies only

to a director of the parent diversified savings and loan

holding company, and not to a director of a subsidiary of the

diversified savings and loan holding company.

Under the facts of your proposal, the general

prohibition against interlocks would apply to management

officials of Capital and C.C.B. because Capital's financial

institution subsidiaries have assets in excess of $500 million,

and C.C.B. has assets in excess of $1 billion. Since Mr,

Wright is an officer and director of a subsidiary of Capital,

he does not, in my opinion, qualify for the exception provided

in the Interlocks Revision Act for directors of a parent

diversified savings and loan holding company. Accordingly, his

proposed service as a director of C.C.B, would be prohibited by

the Interlocks Act.

Should you have additional questions regarding this

matter, please contact Thomas Corsi (202/452-3275) of my staff.

Very truly yours,

(signed)

J Virgil Mattingly

General Counsel

cc: Federal Reserve Bank of Richmond

William J. Bosies, Jr,, Esq.

William Laythan, Esq.