Banks and Trust Companies - Commercial Banking

Commissioner's Office Issues New Interpretive Letters Authorizing Expanded Powers for State Banks

Tax preparation services

In a recent Interpretive Letter (Interpretive Letter 97-1), the Office of Banks and Real Estate concluded that a state bank may offer tax preparation services to its customers and to the general public. Tax preparation services are financial services that are incidental to the business of banking. When offering tax preparation services, banks are limited to preparation of tax returns and must not hold themselves out as expert tax consultants by giving legal advice, engaging in tax planning, or otherwise giving the impression that they are tax "experts." In any undertaking between the bank and its customer in this area, it should be made clear that the customer is responsible for the accuracy and completeness of all financial information supplied to the bank for tax preparation purposes, and the bank does not vouch for the accuracy or completeness of such information.

Minority equity investments

In Interpretive Letter 96-6, the Office of Banks and Real Estate recognized the authority of state banks to acquire a minority ownership interest in a corporation, limited liability company or partnership (hereafter collectively referred to as "the entity"), provided certain conditions are met. The business activities of the entity must be limited to activities that are part of, or incidental to, the general business of banking. The investing state bank must be in a position (by contract, articles of incorporation, by-laws or otherwise) to prevent the entity from engaging in activities that are beyond the general business of banking. In the event that the entity does engage in such non-banking activities, the state bank must be authorized (and must exercise such authority) to withdraw from the entity and recover its capital contribution. The state bank's loss exposure must be limited (by contract, articles of incorporation, by-laws or otherwise), as a legal and accounting matter, to its investment and the state bank must not have open-ended liability for the obligations of the entity. Finally, the state bank's investment in the entity must be convenient or useful in connection with the bank's own business, as opposed to a passive investment in a company unrelated to the affairs of the state bank. Interpretive Letter 96-6 clarifies that a state bank can make banking services available by joining forces with other investors, including other financial institutions, without the state bank having to make a substantial capital investment in the establishment of its own subsidiary.

Internet service provider

In Interpretive Letter 96-4, the Office of Banks and Real Estate concluded that state banks are authorized to provide Internet access to individuals in the state bank's local market area. The state bank could provide the necessary computer hardware to establish the Internet link and could offer subscriptions for Internet access to local residents. Interpretive letter 96-4 noted that the Board of Governors of the Federal Reserve System has ruled that provision of Internet financial services is closely related to banking. Furthermore, the Illinois Banking Act permits state banks to make contributions to the scientific, educational or economic development and welfare of the state bank's community. Several conditions are imposed to protect the state bank against liability in the event of misconduct or abuse by an Internet subscriber and to maintain the integrity of the state bank's traditional operations. These conditions include the state bank's authority to terminate a subscriber's access through the bank and requirement that the bank's Internet equipment and activities be adequately segregated from the state bank's other operations.

Complete copies of the interpretive letters which outline new activities and conditions by which banks can exercise these activities can be found under the Banks and Trust Companies Bureau portion of the Agency's home page on the World Wide Web.