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FDIC Federal Register Citations |
October 21, 2002 Robert E. Feldman, Executive Secretary Attention: Comments/OES Federal Deposit Insurance Corporation 550 17th Street, NW Washington, DC 20429 Re: Insurance of State Banks Chartered as Limited Liability Companies Dear Mr. Feldman: The ICBA believes that it is fully appropriate to give community banks a variety of options for structuring their operations. Since the LLC form of corporate structure provides another option for community banks, and because the proposal addresses any safety and soundness concerns, the ICBA generally supports the FDIC proposal, and recommends certain modifications for the final rule. Background Under the terms of the FDI Act, a state bank that is engaged in the
business of receiving deposits other than trust funds and is incorporated
under state law is eligible for deposit insurance. The FDI Act does not
define the term "incorporated," and neither the Congressional record nor
judicial precedent provides guidance. The proposal lists four traditional attributes of a corporation:
perpetual succession, centralized management, limited liability and free
transferability of ownership interests. The FDIC notes that these same
four attributes have been used by the Internal Revenue Service (IRS) to
determine whether an entity should be taxed as a corporation instead of
being taxed as a partnership. One variant of the corporate structure is the limited liability company (LLC). As with corporations, LLCs are creatures of individual state law. Originally created in Wyoming in 1997, every state and the District of Columbia now has some variation of the LLC on its statutes. The issue before the FDIC is whether such an entity qualifies as "incorporated" under terms of the FDI Act and therefore is eligible for deposit insurance coverage. The Proposal Because different states have different requirements for LLCs, the FDIC
proposes to determine that an LLC must have the four key components of
corporate structure in order to be considered "incorporated." In other
words, an LLC must have perpetual succession, centralized management,
limited liability and free transferability of interests in order to meet
the FDI Act definition of "incorporated." The FDIC has enumerated specific
reasons for requiring each attribute in order to ensure the safety and
soundness of the bank. For example, perpetual succession ensures the
continuity of the bank and public confidence; centralized management is
key to identify a discrete group of individuals responsible for the
operation of the bank; and limited liability and free transferability of
interests encourage investment in the business and facilitate the raising
of capital. Any LLC with the four identified corporate attributes would be
deemed a corporation under the proposal and therefore eligible for deposit
insurance. The ICBA believes that it is appropriate to provide individual banks
with the flexibility to structure their business operations as each
individual bank sees fit, within the parameters of safety and soundness. Some of the factors are important to safe and sound operation, and
therefore should be accorded greater weight. For example, perpetual
succession is a factor that is important to ensure the entity will be an
ongoing one. Unlike the traditional partnership, a bank and its customers
should be assured that the entity will continue in operation barring any
unforeseen circumstances. Similarly, centralized management assures the
FDIC that the entity will be run properly. Conclusion The ICBA believes that the FDIC should permit a state bank organized as an LLC to obtain federal deposit insurance. While it may be appropriate for the FDIC to consider the four traditional corporate attributes as factors, the ICBA does not believe these factors should be given equal weight or should necessarily all be requisites. Fundamentally, the FDIC assessment should be whether the entity is properly chartered under state law and whether it can operate in a safe and sound manner. Thank you for the opportunity to comment. If you have any questions or
need any additional information, please contact ICBA's regulatory counsel,
Robert Rowe, at 202-659-8111 or robert.rowe@icba.org. [1] ICBA is the nations leading voice for community banks and the only national trade association dedicated exclusively to protecting the interests of the community banking industry. ICBA has 5,000 members with branches in 17,000 locations nationwide. Our members hold nearly $511 billion in insured deposits, $624 billion in assets and more than $391 billion in loans for consumers, small businesses, and farms. They employ more than 239,000 citizens in the communities they serve.
[2]
Generally, a partnership is a creature of
common law, although most states have codified their existence.
Partnerships are distinguished from corporations in that there is no
centralized management (each partner can make decisions), no
transferability of interests or perpetual succession (the departure of one
partner constitutes a dissolution of the partnership), and no limited
liability (each partner is fully liable for the debts of the partnership). Sincerely, |
Last Updated 10/22/2002 | regs@fdic.gov |