Court Lifts Cloud over Regional Interstate Laws; Federal Appellate Ruling Holds Them to Be Constitutional; Supporters Cheer, but Losers Hint the Fight Isn't Over
Fraust, Bart, American Banker
NEW YORK -- A cloud of uncertainty has been removed regarding the constitutionality of state laws restricting interstate banking to a particular region, proponents of regional banking said Thursday.
They were referring to a ruling this week by a federal appeals court in New York that affirmed recent Federal Reserve Board decisions approving mergers of Connecticut and Massachusetts banks.
"This ruling is constructive for the New England region and for all other states considering some form of regional compact," said James Moynihan, senior vice president of the Boston-based investment banking firm of Moseley, Hallgarten, Estabrook & Weeden Inc.
"It's a very sweet victory," said Britan J. Woolf, Connecticut banking commissioner.
The court decision -- handed down by the United States Court of Appeals for the Second Circuit in New York -- came in connection with appeals of the Fed rulings filed by Citicorp and Northeast Bancorp Inc. of New Haven, Conn.
Backers of regional banking were encouraged that the court dealt head-on with the constitutional questions raised by Citicorp and Northeast. And they expect the ruling to spark merger deals in New England and the Southeast, where a number of states have enacted regional interstate banking laws, and to encourage other regions of the country to go ahead with regional interstate plans.
"This is an important precedent for regional banking," said Joel R. Wells Jr., chairman and chief executive officer of Sun Banks Inc. of Orlando, Fla. Sun recently agreed to merge with the Trust Company of Georgia, Atlanta. Florida and Georgia have enacted legislation that will permit interstate bank mergers next year among a band of states in the Southeast. 'A Welcome Decision'
"This is a very clear decision that regional interstate banking is within the purview of state action," he added.
"It's a welcome decision that helps lift the cloud over regional banking," said Paul D. Hill, executive vice president of First Atlanta Corp. "A number of companies, including ourselves, had concern about the decision. The resolution of the issue on a positive basis will make companies more willing to move ahead."
However, one opponent of regional interstate banking vowed that "this is just the beginning of the war," saying that Citicorp and Northeast will take their fight to the United States Supreme Court.
Spokemen for Citicorp and Northeast were not saying publicly Thursday whether a decision to appeal had definitely been reached.
"We are exploring our options of appeal," said Daniel Glassberg, counsel for Northeast. "We haven't made a definite decision on method."
He added that there are other options besides an appeal to the Supreme Court, though he declined to disclose them. Northeast has accepted a merger offer from the Bank of New York Co.
A source close to Northeast said the Connecticut bank probably first will ask the appeals court for a rehearing before it makes the appeal to the Supreme Court.
Citicorp and Northeast are challenging Federal Reserve Board rulings allowing the following deals:
* The Bank of New England Corp., Boston, and CBT Corp. of Hartford, Conn.
* Hartford National Corp. of Connecticut and Arltru Bancorp Inc. of Lawrence, Mass.
* The Bank of Boston corp. of Massachusetts and Colonial Bancorp Inc. of Waterbury, Conn.
Under the court ruling, the mergers cannot be completed before Aug. 22. Citicorp and Northeast will probably seek to halt completion of the mergers pending the appeal to the Supreme Court. Constitutional Violations Charged
In addition, the Bank of Boston has agreed to acquire RIHT Financial Corp. of Providence, R.I., and the combined Bank of New England-CBT would buy Maine National Corp. of Portland.
In their court challenges, Citicorp and Northeast argued that the Connecticut and Massachusetts laws violate several sections of the United States Constitution, including the Commerce Clause, the Compact Clause, and The Equal Protection clause. …