Federal Deposit
Insurance Corporation

September 25, 2002

Mr. Robert D. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th St NW
Washington, DC 20429-0002

VIA E-MAIL: comments@fdic.gov

RE: Insurance of State Banks Chartered as Limited Liability Companies

Dear Mr. Feldman:

The Independent Bankers of Colorado (IBC) strongly supports allowing state chartered banks to be chartered as or converted to limited liability companies or comparable types of entities (LLCs) and believe that LLCs meet the underlying requirements of a state bank for purposes of FDIC insurance. The IBC is Colorado's largest trade association, representing approximately 125 community banks doing business in over 500 locations statewide.

The questions posed by the FDIC in its notice of rulemaking are responded to as follows:

1. Should the FDIC permit a state bank organized as an LLC to obtain federal deposit insurance?

Yes. The critical inquiry for the FDIC should be whether the states' banking laws offer a choice to incorporators in the state between the more traditional "corporate" form of ownership and the LLC form. The operative state law should provide the criteria for the bank charter. If these criteria meet underlying objectives of safety and soundness to the banking system and other objectives of the Federal Deposit Insurance Act, then the fact that the charter is an LLC is irrelevant to a determination as to whether the entity is eligible for deposit insurance. The IBC has drafted and is prepared to introduce in the Colorado General Assembly amendments to the State Banking Code to permit state banks to organize as or convert to the LLC form upon such authorization at the federal level being granted to state banks. The State Banking Commissioner has reviewed this draft.

2. If so, should the FDIC interpret the term "incorporated" utilizing some, all, or none of the traditional four corporate attributes?

The FDIC should use only the attributes of perpetual succession, centralized management and limited liability in its interpretation. We believe the FDIC's analysis of the essential characteristics of an "incorporated" entity is largely accurate. The one area with which we have disagreement concerns the element of "free transferability of ownership interests". In the view of the IBC this is not an essential characteristic of the corporate form of ownership and is not one which should be imposed as a mandatory requirement by the FDIC. In its analysis (67 F.R., pp.48055-48056), the FDIC recognizes that "in closely held corporations, it is a common practice for shareholders to enter into agreements requiring a selling shareholder to obtain the prior approval of the remaining shareholders." Many closely held banking corporations have such restrictions on transferability and many others which are owned by closely held holding companies have similar restrictions at the holding company level. This has not been viewed in the past by the FDIC as a significant impairment of the ability of these entities to raise capital, and a requirement of "free transferability" should not be imposed solely on those banks which choose to adopt an LLC structure.

We concur with the balance of the FDIC's analysis concerning the importance of perpetual succession, centralized management and limited liability. We suggest that to maintain uniformity of treatment the "free transferability" element be disregarded for LLC's as an essential attribute of insurability since this is the approach the FDIC has traditionally taken with respect to closely held corporate banks and bank holding companies. A rule which would require only the other three attributes of corporate ownership as necessary conditions for insurability would also be consistent with the pre-1997 approach of the IRS. That approach looked only to the presence of three of these four elements as being essential to determining whether a particular entity would be treated as a corporation.

3. If the FDIC should not utilize any of the four corporate attributes, how should it interpret the term "incorporated"?

As noted above, we believe the FDIC should utilize in its definition of "incorporated" only the three essential attributes of perpetual succession, centralized management and limited liability. We suggest that this would be consistent with current FDIC practice and would encompass all aspects of a bank's fundamental structure which are relevant to the issue of insurability.

Thank you for this opportunity to comment.

Sincerely,
Barbara M.A. Walker
Executive Director