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FDIC Federal Register Citations

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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
67 FR 48054 (July 23, 2002)

Dear Mr. Feldman:

America’s 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 (“LLC’s”) 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 term’s meaning. As a result, it is unclear whether banks chartered as LLC’s can be considered to be “incorporated” for deposit insurance purposes.

ACB Position

ACB strongly urges the FDIC to permit state banks organized as LLC’s 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 LLC’s, 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 bank’s 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 LLC’s.

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 LLC’s 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
Director of Regulatory Affairs
Senior Regulatory Counsel

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

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