Banking across State Lines: Public and Private Consequences

By Peter S. Rose | Go to book overview

ferent set of rules confronts a state-chartered interstate bank every time it enters a new state. At least some state-based banking companies will find this an onerous burden and, presumably, opt for the federal banking system.


FUTURE REGULATORY REFORM

Until the 1990s the pace of regulatory reform in the banking and financial institutions field was slow and deliberate. Major banking bills were seen once or twice per decade. However, the rapidly advancing technology of information gathering and communication appears to have brought the public closer to the regulatory process and more sensitive to its successes and shortcomings. The hoped-for outcome will be more rapid adjustments of regulatory regimes and processes in the future in an effort to keep pace with the shifting demands of the financial-services marketplace and with improvements in the technology of producing and delivering financial services.

However, there are no certainties when it comes to legislative and regulatory reform, especially in the face of continuing competitive conflicts between commercial banks and nonbank financial-service providers, such as insurance companies and security dealers. The active opposition of these and other parties of interest may continue to frustrate further banking industry reforms despite ongoing changes in the public's financial-service needs and in the technologies surrounding the delivery of banking services.

To the extent that banking firms cannot effectively blunt the damage caused by slowly adjusting laws and regulations, their industry is in serious danger of becoming increasingly irrelevant to the public's financial-service demands. Already, in the face of the Glass-Steagall Act's prohibitions against the general offering of underwriting services for privately issued securities, commercial banking's share of U.S. credit markets appears to have declined somewhat over the past two decades. The same fate may befall other key bank service lines in the absence of regulatory relief until the commercial banking industry as it is known today ceases to play a substantive role in the workings of the financial system.


NOTE
1
The Riegle-Neal Interstate Banking Act has not been the only example of federal laws that can preempt the states' authority over banks entering their territory in favor of federal authority. As Darrel Dreher, Hugh Hayden, and Michael Tomkies ( 1995) note, the late 1980s and early 1990s ushered in a wide array of court decisions and regulatory pronouncements that allow lenders situated in one state to extend credit to borrowers located in other states on terms (particularly interest rates and fees) that are allowed by the lenders' states but not necessarily by the borrowers' states. In other words, lenders can "export" the terms of a loan at their permissible rates and fees even if the borrowers' states outlaw these lenders' rates and fees. In

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