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FDIC Federal Register Citations

-----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

Last Updated 10/22/2002 regs@fdic.gov

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