Toward a bank-LLC: Analysis and implications of the FDIC's Final Rule allowing banks to organize as limited liability companies

The Federal Deposit Insurance Corporation (FDIC) recently adopted a final rule entitled "Insurance of State Banks Chartered as Limited Liability Companies" (the Rule), which the industry hoped would advance the pass-through objective by accommodating banks chartered as limited liability companies (bank-LLCs). Closer evaluation reveals, however, that the FDIC delivered somewhat less than was expected. In fact, it might even be argued that the Rule actually hinders, more than it helps, the future viability of bank-LLCs. A detailed background and overview of the traditional LLC structure is provided, as well as its application to financial institutions. The Rule, in substance, is a type of structural regulation usually reserved for chartering authorities. Each Rule restriction is analyzed, seeking to determine whether they make sense individually. The overall viability of the bank-LLC charter is predicted. The Rule's provisions are inherently inconsistent with its stated purpose.