The 1994 Interstate Banking Law and Its Implications for the Structure of U.S. Banking
After more than half a century of outright prohibitions against interstate banking, a sweeping interstate holding company and interstate branching law finally passed the United States' Congress in the late summer of 1994. One key factor in the new law's passage was the banking and savings and loan crisis of the 1980s. This financial debacle resulted in the failure of more than two thousand depository institutions, bankrupted federal deposit insurance reserves, and reminded the public of the risks associated with financial-service firms that are narrowly dependent upon one community or even one state.
Moreover, as the 1980s began, federal banking agencies were given greater latitude to arrange cross-state mergers among failing and healthy banks and thrifts. This federally supported form of interstate banking helped to demonstrate to Congress and the public that interstate banking could bring public benefits in the form of recapitalizing and strengthening troubled banks and restoring public confidence in the nation's banking system. At the same time competition among nonbank financial-service firms had intensified, and several nationally focused nonbank financial institutions, particularly security dealers and mutual funds, were pulling away deposits from banks and savings and loan associations, making bankers aware that their markets had broadened substantially to include regional and even international components.
In this expanding and troubled financial marketplace artificial, legally im-