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October 21, 2002 Robert E. Feldman, Executive Secretary Re: Insurance of State Banks Chartered as Limited Liability Companies Dear Mr. Feldman: Americas Community Bankers (ACB)1 is pleased to comment on the notice of proposed rulemaking that would amend Federal Deposit Insurance Corporation (FDIC) regulations to clarify that state-chartered banks organized as limited liability companies (LLCs) are eligible for federal deposit insurance coverage if they meet certain criteria.2 Under the Federal Deposit Insurance Act (the FDI Act), state-chartered banks must be incorporated under the laws of any State to be eligible for federal deposit insurance.3 However, the FDI Act does not define incorporated, nor is there any judicial guidance on the terms meaning. As a result, it is unclear whether banks chartered as LLCs can be considered to be incorporated for deposit insurance purposes. ACB Position ACB strongly urges the FDIC to permit state banks organized as LLCs to be eligible for federal deposit insurance. All banks that meet the regulations established by the respective state banking authority and obtain a charter from the division of banking should be considered as being incorporated and therefore eligible for deposit insurance. This interpretation would provide additional choice of corporate forms and would promote innovation within the industry. Incorporation should depend on state law. The FDIC believes that the attributes of perpetual succession, centralized management, limited liability, and free transferability of interests are attributes that a state bank should have in order to be incorporated. Accordingly, an institution that is chartered as an LLC under state law and that has all of the four corporate attributes would be considered to be incorporated under the law of the state and therefore eligible for federal insurance. State law, however, is not bound by these general characteristics. In order to be incorporated under state law, a bank must meet the regulations established by the state banking authority and must obtain a charter from the division of banking. Accordingly, the FDIC should interpret the phrase incorporated under the laws of any state to mean that all entities, including LLCs, that are chartered in accordance with state banking law may apply for federal deposit insurance. Provided that all FDIC safety and soundness requirements are met, state banks should be eligible for deposit insurance regardless of the banks corporate form. States should be encouraged to provide a choice of corporate forms that are eligible for federal deposit insurance. Tying the hands of state legislatures and state regulators by requiring that all institutions possess the four historic attributes identified by the FDIC as defining the traditional corporate form does not serve any public purpose. Different business forms, including the LLC, have evolved since the FDI Act became law. Therefore, there is a rational basis for construing the term incorporated to include state chartered banks formed as LLCs. Allowing states to offer a choice of corporate forms that are eligible for federal deposit insurance provides incorporators with the opportunity to select the corporate form that best suits the strengths and needs of their customers and communities. It also provides business flexibility and economic freedom, which promote growth. Given the significance of maintaining the dual banking system, we believe that permitting state banks chartered as LLCs to have federal deposit insurance is an important factor in providing choices to all charter forms. It is this type of innovation and flexibility that has made the state banking system a strong competitor to the national scheme. Conclusion ACB hopes that the FDIC will take this opportunity to open the doors of choice that will ultimately help community banks to find innovative ways to serve their communities. Thank you for the opportunity to comment on this important matter. Should you have any questions, please contact the undersigned at 202-857-3121 or Krista Shonk at 202-857-3187. Sincerely, Charlotte M. Bahin 1 ACB represents the nation's community banks of all charter types and sizes. ACB members, whose aggregate assets exceed $1 trillion, pursue progressive, entrepreneurial and service-oriented strategies in providing financial services to benefit their customers and communities. 2 67 FR 48504 (July 23, 2002). 3 12 U.S.C. 1813(a)(2)(B). |
Last Updated 10/21/2002 | regs@fdic.gov |