By Nancy Raiden Titus
Journal Record Staff Reporter
Oklahoma banking industry trade groups are quite pleased with the state's branching law even though it is one of the most restrictive in the country.
Preservation of franchise value and protection from competition are two strong reasons for the position in an industry that often complains of excessive regulation.
Under current Oklahoma law, healthy banks that want to expand are forced to look to acquisitions as a method of building a bank network. Banks have an unlimited ability to branch by acquisition, but they are only allowed to open two new, or de novo, branches within the city limits or in an unbanked town up to 25 miles away.
The law encourages consolidation, which experts agree is needed in Oklahoma, but in doing so it also drives up the price of banks in prime locations. It also keeps some banks from having to face competition from branches of larger institutions located elsewhere.
Preserving franchise value is the No. 1 reason for banker opposition to changing the laws, said Dr. Gary Simpson, who holds the Oklahoma Bankers Association Chair of Commercial Bank Management at Oklahoma State University.
"The individual franchise value of a chain is worth more given limited branching."
He explained using familiar eateries as examples. If McDonald's has tight restrictions on where a person could locate one of its restaurants while Pizza Hut allows its franchisors to put them on every corner, the McDonald's franchise would have greater value.
"Everybody says they like free enterprise competition for everybody else, but when it comes to me, I want a monopoly. A monopoly is what a business works to get. That is why we have patents."
Simpson agreed that Oklahoma needs more banking industry consolidation but is opposed to setting arbitrary limits before allowing expanded branching.
"It is not necessary to get rid of 50 more banks before we get statewide branching. Some effects are the same if you have 50 more or (50) less banks. There is not that much difference. You want only the strongest to branch so they can afford to operate. I'd say most of the banks trying to do the branching are pretty solid. If you wait for 50 less, it wouldn't make that much difference.
"Branching will reduce the number of charters because there are some banks that have a charter that will sell out. Some might be a target for a branch that might be protected now. Maybe there is no one with money that wants to go into a protected environment, but it might be attractive to sell."
He said bankers' arguments against expanding branching laws could be considered self-serving.
"But the other side of the coin is what the bankers are talking about _ and I believe there is some truth to it _ what's going to happen in the local community?"
The common argument is that a branch will take deposits out of the community and use them for lending elsewhere. That was the reason the Community Reinvestment Act was created. …