ACCORDING TO A NEW ruling by the Federal Trade Commission, board members of savings and loan institutions may not simultaneouly be board members of banks in the same jursidiction. The ruling, an affirmation of an earlier decision by an FTC administrative judge, may put to rest much of the controversy that has surrounded corporate board membership for more than 20 years. At question was whether a few individuals who sat on the boards of both savings and loan institutions and banks were, in effect, participating in anticompetitive practices by putting one institution in a position to benefit from information that the board members may have gleaned from the other. The principle at stake is hardly new; for years the FTC has busied itself with the problem of so-called interlocking directorships in private industry. What this means in anti-trust terms, is simply a situation in which the same people are board members of private companies in the same or comparable industry that may be in competition with each other. What is new about the commission's decision concerning savings and loan boards is simply that it marks the FTCs first venture of this sort into the banking community.
What brought the matter to the commission's attention was a case involving Perpetual Savings and Loan, the largest savings and loan institution in Washington. Several of Perpetual's board members also serve on boards of banks in this city: American Security and Trust, National Bank of Washington, and Union First. After reviewing the case, the commission concluded that there were no clear signs of anticompetitive behaviour, but that the possibility for such activity was there. The reason for the FTC decision was that both the savings and loans and the banks were competing to provide many of the same services - savings accounts and mortgage loans in particular. The FTC concluded that because of the similarity of activity, Perpetual's board members had to resign either from Perpetua1 or from the bank on which they served.
Th commission's decision will no doubt have a significant effect on the financial community both in the District and throughout the rest of the country. One result will be that savings and loan institutions will now have an incentive to reach out more widely into their communities to recruit new board members. This is something the Federal Home Loan Bank Board has been encouraging savings and loans to do as part of its monitoring of red-lining - a practice by which whole neighborhoods are discriminated against in mortgage lending. The FTC ruling won't result in a complete turnaround in the board memberships of either savings and loan institutions or of banks - nor should it. What it will do is get those institutions to rely on a larger group of local residents for local financial policies and practices. And that strikes us as right on the money.