Magazine article American Banker

Citicorp to Continue to Fight Tennessee Industrial Bank Ban

Magazine article American Banker

Citicorp to Continue to Fight Tennessee Industrial Bank Ban

Article excerpt

NASHVILLE -- Citicorp Financial Services Corp., having lost the first round in its attempt to have a Tennessee law outlawing industrial banks ruled unconstitutional, says it will appeal last week's decision by a chancery court judge upholding the law.

Citicorp attorney Val Sanford said he will also askt he Tennessee Supreme court to continue an injunction barring enforcement of the new statute.

Citicorp Financial Services, a subsidiary of the giant New York bank holding company, set up offices in Knoxville and Nashville in 1983 after the Tennessee legislature passed a law to provide depositors of the now-bankrupt Southern Industrial Banking Corp. with federal insurance. Southern Industrial, a loan and thrift company, was part of the Butcher family banking empire. The 1983 law allowed the institution to convert to an industrial bank and receive Federal Deposit Insurance Corp. insurance.

Citicorp used a loophole in the law to become the first and only out-of-state bank to set up industrial banks in Tennessee. It issued uninsured thrift certificates until March 1984, when it gained FDIC insurance.

Tennessee bankers, scrambling to keep the state's door closed to interstate banking, argued that the Southern Industrial bailout bill was not intended to allow Citicorp to compete with Tennessee banks through thrift certificates.

They succeeded in persuading Banking Commissioner William C. Adams to suspend Citicorp's industrial bank charter in March -- just days after the FDIC granted insurance -- and then persuaded the legislature to close the loophole that allowed Citicorp the federally insured certificates. …

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