New England: On Cutting Edge of Regional Banking Movement

By Syron, Richard F. | American Banker, July 11, 1984 | Go to article overview

New England: On Cutting Edge of Regional Banking Movement


Syron, Richard F., American Banker


New England has long been a hotbed of banking innovation. It was in New England that some of the first banks in the nation were chartered. In more recent times, Massachusetts was the state in which NOW accounts originated.

New England is now on the cutting edge of the movement to interstate banking, at least in the southern New England states, through the possibly interim step of intraregional agreements.

A banking organization can enter another state either through branching, merging, or using a holding company to affiliate with another bank. Under the Douglas Amendment, every state has the option of allowing a bank holding company headquartered in another state to acquire or establish a bank within its borders.

The McFadded Act prohibits national banks from branching into other states leaves to the state the right to rule on this issue for state-chartered banks. In both cases, state law stipulates what degree of penetration by outside banks is permissible. Until relatively recently, no state had opened its borders to entry by either an out-of-state bank or bank holding company.

In 1975 and 1982, Maine and New York, respectively, passed laws allowing reciprocal interstate banking. This meant that a bank holding company in any state that would allow, for example, a Maine bank holding company to do business within its borders was free to enter bank or establishing a new one.

Most recently, on Feb. 13 of this year, the Georgia legislature passed a regional reciprocal interstate bill, which is awaiting the governor's approval. In 1982, Alaska passed legislation allow out-of-state banks or bank holding companies to enter that state without a reciprocal provision. A number of other states, such as Delaware and South Dakota, also allow out-of-state banks to operate special facilities within their boundaries. Benefits to 'Capital-Poor Areas'

In the case of both Maine and Alaska, one of the motives for allowing inter-state banking was a concern that they were "capital-poor" areas that would benefit from the entry of out-of-state institutions. The Maine law has an actual stipulation that attempts to prevent "capital drains" from Maine as a result of any interstate banking activity.

in New York, home of some of the nation's and the world's largest banks, the legislation was passed more in the hope that these institutions would be no longer constrained to that state but allowed to operate full-service facilities in other parts of the country.

In 1982, Massachusetts passed a law allowing reciprocal interstate banking but only on an intraregional basis. In 1983, Rhode Island and Connecticut followed suit. The Massachusetts and Connecticut laws provide for reciprocal interstate banking with any of the other New England states. The Rhode Island law provides for reciprocal interstate banking confined to the other New England states for the two years starting in July 1984, but on a full national basis thereafter.

At this time, both New Hampshire and Vermont are considering interstate banking legislation. If they adopt such legislation, it will most likely provide for reciprocal interstate banking on a nationwide rather than a regional approach. On Feb. 7, 1984, Maine repealed the reciprocity provision of its legislation and opened the state for any banking organization that wants to enter.

Why do three northern New England states seem to prefer a nationwide approach, while the three southern New England states have a regional experiment, at least initially? One possible explanation is that small and medium-size banks are predominant in the three northern New England states, and many of them see themselves a acquisition targets ultimately and want to maximize the number of bidders.

Massachusetts, Rhode Island, and Connecticut contain the region's largest banks, which may be more interested in consolidating within New England for some period before full interstate banking becomes effective. …

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