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October 18, 2002
Mr. 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 (12 CFR Part 303)
Dear Mr. Feldman:
Thank you for the opportunity to comment on the Federal Deposit
Insurance Corporation?s (FDIC?s) proposed rulemaking to clarify
that a bank chartered as a limited liability company (LLC) under
state law would be considered ?incorporated? under state law if it
meets certain criteria. This determination would satisfy a
critical requirement that LLC banks must meet in order to be
considered eligible for federal deposit insurance. The Conference
of State Bank Supervisors (CSBS) supports the proposal.[1]
Background
In the notice of proposed rulemaking issued on July 23, 2002, the
FDIC indicated that one of the statutory requirements that a state
chartered bank must meet in order to be eligible for federal
deposit insurance was that it be ?incorporated under the laws of
any state.? The proposal further indicated that the FDIC had
received inquiries regarding whether a state bank chartered as a
LLC could be considered to be ?incorporated? for purposes of
satisfying this requirement.
In response, through the proposed rulemaking, the FDIC has
suggested that if a state chartered bank organized as a LLC
exhibits four attributes generally associated with corporations,
the FDIC will consider the LLC to be ?incorporated,? thereby
clearing a critical hurdle for federal deposit insurance
eligibility. The four attributes are: (i) perpetual succession;
(ii) limited liability; (iii) centralized management; and (iv)
free transferability of ownership interests.
The proposed rulemaking also includes a series of definitions to
align terms that apply to LLC banks with those used for other
insured banks. Specifically, the proposed rulemaking indicates
that an owner of an interest in a LLC is a ?shareholder,? a
manager of a LLC is a ?director,? an officer of a LLC is an
?officer? (for purposes of the Federal Deposit Insurance Act and
FDIC regulations) and a certificate or other evidence of an
ownership interest in a LLC is both ?voting stock? and a ?voting
security.?
Analysis
CSBS believes that the proposal further expands the ability for
state chartered banks to be innovative regarding permissible
structures. As the professional association of regulators that
charter and supervise two thirds of the nation?s commercial banks,
we are committed to approaches that maintain and facilitate the
existing authority that state legislatures and regulators have to
grant and interpret powers and activities for state chartered
banks. States have long served as laboratories for innovation,
originating a broad range of activities ? from checking accounts
to real estate brokerage powers. CSBS applauds the FDIC?s interest
in maintaining flexibility and options.
CSBS also supports the FDIC?s effort to ensure that state banks
organized as LLCs meet appropriate safety and soundness standards.
In that regard, the proposal seeks comment on whether the four
characteristics associated with corporations are appropriate as a
standard to determine whether state banks organized as LLCs should
be eligible for federal deposit insurance. CSBS believes that the
four attributes are appropriate but offers two specific comments.
Firstly, we strongly believe that the full range of safety and
soundness and enforcement mechanisms that apply to existing state
chartered banks (e.g., state banks organized as corporations)
should apply to banks organized as LLCs. In the proposal the FDIC
aligns key definitions in the Federal Deposit Insurance Act that
currently apply to federally insured banks with terms that would
apply to banks organized as LLCs. This is a sound approach which
facilitates safety and soundness. In that regard, CSBS also
expects state banking agencies to either fully apply existing
safety and soundness requirements or to supplement existing safety
and soundness guidelines for banks that are authorized to organize
as LLCs.
Secondly, while CSBS generally supports utilization of the four
corporate attributes that the FDIC has identified, and we
recognize that the FDIC has identified the four attributes for
purposes of determining suitable standards that a bank must meet
in order to qualify for federal deposit insurance, CSBS believes
that states remain the appropriate authorities for determining
what standards are suitable for corporations in their states. The
FDIC?s interpretation and action in this area should be limited to
this context.
Finally, CSBS is aware that only a small number of states
currently allow state chartered banks to organize as LLCs.[2]
Some states will be required to amend certain statutes in order to
authorize banks to operate as LLC?s; those changes may not be made
immediately. However, our dialogue with state banking agencies
indicates that several states may consider accommodating this
option in the future. In this regard, we support the FDIC?s
proposal to expand options available to state chartered banks.
Thank you again for this opportunity to comment. Please feel free
to call on us if we can provide further assistance.
Best Personal Regards,
Neil Milner
President and CEO
[1] CSBS is the professional organization that
represents the regulators of the nation?s 6,500 state chartered
banks and works to advance the state banking system
[2] Among the states that allow this option are
Maine, Nevada, Texas and Vermont.
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