| -----Original Message-----
From: Jerry Cavanaugh
Sent: Monday, October 21, 2002 6:09 PM
To: Comments
Subject: Insured state banks as limited liability companies
October 21, 2002
Robert E. Feldman, Executive Secretary
Attention: Comments/OES
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Re: Comments on proposed 12 CFR Part 303; banks as limited liability
companies
Dear Mr. Feldman:
On behalf of the Community Bankers Association of Illinois ("CBAI"), I am
submitting this comment letter in response to the FDIC's notice of
proposed rulemaking regarding the "incorporation" of state-chartered banks
as limited liability companies ("LLCs"). CBAI's membership is comprised of
516 banks, the majority of which are chartered by the State of Illinois.
While CBAI supports the ultimate conclusion in the proposed rule (i.e.,
that LLCs qualify as being "incorporated" under state law for purposes of
qualifying for FDIC insurance), we question the necessity for the tests by
which the proposed rule would measure LLCs as being "incorporated."
State laws that provide LLCs as an alternative corporate structure should
be utilized in determining whether a bank is sufficiently "incorporated"
for insurance purposes. The benchmarks described in the federal tax code
and referenced in the FDIC's notice of proposed rulemaking should not
necessarily define whether or not a bank is incorporated. State-chartered
corporate entities, whether general business corporations or commercial
banks, are subject to the particular corporate organization and governance
processes of State law. This is true separate and apart from how such
corporations will be treated under the federal tax code.
CBAI believes that the FDIC could exercise its safety and soundness powers
selectively if, in a specific instance, the FDIC found that a state law
pertaining to the incorporation of banks as LLCs presented particular
safety and soundness concerns. However, if a state law provides the LLC
route as an optional form of incorporation, and that form does not pose
any attendant risks to the operation of a commercial bank, there is no
reason that a bank could not be chartered as a LLC if permitted pursuant
to the state law.
CBAI applauds the FDIC for its consideration of this issue. Clarifying the
ability of state banks to incorporate as LLCs is a timely and worthwhile
pursuit. CBAI strongly encourages an outcome that will permit state banks
to be chartered as LLCs if so permitted by state law. To the extent that
the FDIC determines that it is compelled to place some federal
restrictions or guidelines on the LLC alternative, we anticipate that the
FDIC will not arbitrarily impose restrictions or guidelines that inhibit
or undermine the judgments of state legislatures as to what corporate
organization and governance structures are appropriate, reasonable and
sound for LLCs in the respective states.
Sincerely,
Jerry D. Cavanaugh
General Counsel
Community Bankers Association of Illinois
901 Community Drive
Springfield, Illinois 62703
(217) 529-2265
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