The Senate Banking Committee approved a bill Wednesday that would allow banks to branch across state lines, opening the door to national interstate banking.
The bill would establish a nationwide policy that allows bank companies to acquire banks in more than one state. This already is allowed in most states, including Illinois.
In addition, the federal law would allow bank-holding companies to combine subsidiaries in different states into a single bank with branches. Currently, these companies must retain a separate charter and bank organization within each state.
“This is a major step toward modernizing our banking system and increasing its efficiency,” said committee chairman Donald Riegle (D-Mich.).
Interstate banking has been a divisive and hard-fought issue inside and outside the banking industry for at least 10 years. But the resounding 19-0 approval by the Senate committee encouraged backers that it may become reality in the near future.
Sen. Christopher Dodd (D-Conn.), a sponsor of the bill, predicted that the bill could be on President Clinton’s desk by Memorial Day.
The Senate committee vote “is significant,” said Susan Gordy, a Chicago banking lawyer and lobbyist who represents a number of Illinois financial institutions, including First National Bank of Chicago.
It not only advances “the ball in Congress,” she said, but has avoided controversial amendments that sank previous interstate branching efforts.
A national law “will allow banks to organize themselves along more efficient lines and consolidate their operations,” said John Betar, legislative counsel for the Bankers Roundtable, an association of the nation’s 125 largest bank-holding companies.
“They will be able to save a whole lot of money so that money can be used for loans,” he said.
Furthermore, Betar said, a national law will put an end to what he calls a “crazy quilt patchwork” of state laws and regional agreements that govern bank expansion. In 1986, Illinois first allowed acquisitions by institutions in a five-state region. In 1990, state laws were changed to allow national interstate acquisition.
Restrictions on bank branching ended last year. Many suggest those restrictions have hobbled Illinois banks from growing big enough to compete with bigger regional and national competitors.
Interstate banking has long had the backing of the nation’s largest financial institutions. In the past, groups of smaller financial institutions have fought the law, fearing it would allow major institutions to drive them out of the insdustry.
But the measure passed by the committee had the backing of several major banking organizations, including the American Bankers Association, the nation’s biggest bank trade group, as well as the Bankers Roundtable.
David Manning, director of government relations for the Community Bankers Association of Illinois, said the Senate bill “does not have major import” for Illinois’ community institutions since the state already allows banks from other states to buy banks here.
Some states, including Missouri, have restrictions on acquisitions by out-of-state institutions within their borders.
Manning also noted the Senate bill allows states to “opt out,” or pass state laws prohibiting institutions from turning all the banks they own within a state into branches with the main bank in another state.
“My guess is not many states will do that,” Betar said.
