Newspaper article THE JOURNAL RECORD

Interstate Banking Loophile Gets Banks Leap Federal Law

Newspaper article THE JOURNAL RECORD

Interstate Banking Loophile Gets Banks Leap Federal Law

Article excerpt

NEW YORK _ Banks are not standing idly by waiting for Congress to pass a law allowing them to establish branches across state lines.

Some are taking advantage of a legal loophole to get a jump on interstate banking, allowing them to cut costs by consolidating offices and letting them provide customers near state borders with more convenient service.

Philadelphia-based Corestates Financial Corp., Jersey City, N.J.-based National Westminster Bank and several other institutions have recently announced plans to combine banks in two adjacent states by using a legal provision that lets banks move their headquarters to another location within 30 miles, even if it's across state lines.

Lawmakers have been working for months on a bill that would let banks branch across state lines. But with Congress focused on the crime bill and health care reform, the banking bill has languished. There's little chance of it passing before Labor Day, industry experts said.

The 30-mile law, in place since 1886 but only recently used to combine banks across state lines, provides a convenient alternative to waiting, bankers said.

"We decided there was no need to wait for the interstate banking bill," said Stephen M. Giroux, an attorney for Corestates.

The bank filed an application last week with the Office of the Comptroller of the Currency to merge its New Jersey subsidiary into its Pennsylvania bank. Corestates wants to relocate the legal headquarters of the Pennsylvania bank to Pennington, N.J., located 30 miles away, where its New Jersey subsidiary is based.

The conversion, which is expected to take place within six months, will be a boon to the 135,000 Corestates customers who work in one state and live in the other. Currently, those customers can only make deposits at bank offices in the state where they keep their account. They can, however, obtain cash from any Corestates automatic teller machine.

The deposit limitation is in place because under laws dating back to the Depression banks operating in more than one state must maintain a separate subsidiary in each state. Those subsidiaries have their own accounting systems and customer records and can only take deposits from customers whose accounts are instate. …

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