April 13, 1999

Dear M ________:

This is in reply to your letter of March 26, 1999. Your letter asked whether an equity investment in ________ would be a permissible investment for a California state-licensed bank. As discussed below, it is our view that such an investment is not prohibited by the Financial Code. However, we express no opinion as to whether the proposed investment or the associated insurance sales activities would be safe or sound practices for any bank.

As we understand it, ________ will be organized as a an LLC for the purpose of engaging in business as an insurance agent. Various banks, including California state banks, will own equity interests in ________. ________ will sell insurance products on the premises of the banks (the “Participating Banks”) that own ________.

We see at least two potential legal issues relating to the proposal, namely:

Is an investment in an LLC the equivalent of an investment in corporate stock, which is prohibited by Financial Code Sections 761 and 1335?

If so, could an investment in ________ be approved under the regulations implementing Financial Code Section 772, or would such an investment be prohibited by Subdivision (b) of Section 772, which prohibits a bank from owning the stock of a corporation that is an insurance agent?

We previously reviewed these issues in a letter to another party dated January 31, 1997. A redacted copy of that letter is enclosed for your information. In summary, our view, as expressed in the letter, is that neither Financial Code Sections 761, 1335 nor 772(b) prohibit a state bank from owning an equity interest in an LLC that acts as an insurance agent.

We express no views, however, as to whether an investment in ________ would be considered a safe or sound practice for any state bank. We note that, at a minimum, any Participating Bank would be required to conform to the federal interagency guidelines regarding the sale of nondeposit investment products by third parties on bank premises in order to establish the safety and soundness of the activity proposed in your letter.

This Department administers, among other laws, the Banking Law (Division 1 (commencing with

Section 99) of the Financial Code). We express no opinion as to any other law or regulation, state or federal, that may bear on the matter discussed in your letter.

Very truly yours,

Acting Commissioner of Financial Institutions


Senior Counsel



bcc: J. L. Owen
D. L. Scott
J. F. Carrig
W. G. Thompson

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