Magazine article American Banker

Interstate Bills Dominate State Slates in '85; Legislatures Also Will Deliberate Insurance Powers and Nonbank Bank Restrictions

Magazine article American Banker

Interstate Bills Dominate State Slates in '85; Legislatures Also Will Deliberate Insurance Powers and Nonbank Bank Restrictions

Article excerpt

Interstate Bills Dominate State Slates in '85

Legislatures Also Will Deliberate Insurance Powers and Nonbank Bank Restrictions

The interstate banking controversy, already aggravated by court fights and congressional inaction, is likely to heat up next year when more than 20 states move ahead with interstate bills of their own.

For years, bankers sought protection in legislated business regions, such as states or counties, fearing competition and the concentration of wealth. Two pillars of that protection still stand. The Douglas Amendment to the Bank Holding Company Act of 1956 prohibits bank holding companies from acquiring or establishing banks across state lines and the McFadden Act of 1927 contains the same restrictions for national banks.

However, both acts contain provisions permitting interstate acquisitions if expressly authorized by the states of the acquired institution. States never took advantage of the power to authorize interstate bills because, for the most part, bankers didn't want them to. Many still don't.

Now, however, with cross-industry competition, the advent of so-called nonbank banks, and the desire for premiums for shareholders, many bankers are urging interstate laws.

"I spent most of my life as a banker fighting against interstate banking,' said Frank E. Brawner, executive vice president for the Oregon Bankers Association. But his association voted recently to sponsor an interstate bill, and Mr. Brawner said he now believes "it is a pro-competitive, pro-consumer idea.'

Twenty-one states plus the District of Columbia expect interstate bills, which permit bank mergers across state lines, when their governments convene for the 1985 legislative session. Most of the bills will be regional and reciprocal. A regional provision means that only those bank holding companies from specified states will be allowed entry into the lawmaking state. A reciprocal provision requires the state of the entering bank holding company to have a similar interstate law on its books.

Most New England states have regional and reciprocal rules, as do several states in the Southeast. Citicorp, New York, and Northeast Bancorp., New Haven, Conn., have protested the New England regional laws, claiming they comprise an interstate compact that has not been approved by Congress. The two holding companies have appealed their case to the Supreme Court, and a favorable ruling could create interstate banking nationwide. The court has not yet decided whether it will hear the case.

Rather than let the courts dictate the course of banking evolution, bankers and regulators alike have called for Congress to forge responsive legislation that would eliminate the patchwork of 50 rules for 50 states. Observers say it is unlikely the federal body will enact any such legislation next year.

Laws for Nonbank Banks?

Congress is also unlikely to pass new rules on nonbank banks, despite the pressing need for action there. Under Regulation Y of the Bank Holding Company Act, a bank is defined as an institution that both accepts demand deposits and makes commercial loans. A nonbank bank, then, is a firm that engages in only one of those activities.

A handful of states will move to block the formation of nonbank banks. Colorado, for example, may enact a law that would require a firm accepting demand deposits to make commercial loans, and vice versa.

Other subjects under consideration by various states are: insurance powers for banks; powers to invest in real estate equity; taxing banks as corporations rather than banks; increasing state banking department powers; maintaining higher interest rate ceilings; and mandating lifeline bank accounts, which would provide low-cost or free banking services to low-income consumers.

The following is a state-by-state listing of major banking measures each legislature is expected to consider in 1985:

ALABAMA: The major issue in Alabama in 1985 will be whether the state should pass a regional, reciprocal interstate banking bill similar to the bills that have already been passed in Florida, Georgia, South Carolina, and North Carolina. …

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