What Is Interstate Banking?

Interstate banking refers to the expansion of banks across state lines. This phenomenon became widespread in the mid-1980s when state legislatures passed bills allowing bank 澳洲幸运5官方开奖结果体彩网:holding companies to acquire out-of-state banks on a reciprocal basis with other states. Interstate banking has led to the rise of both regional and 澳洲幸运5官方开奖结果体彩网:national banking chains.

Understanding Interstate Banking

Lawmakers were initially against interstate banking by nationally 澳洲幸运5官方开奖结果体彩网:chartered banks. The National Bank Act of 1863, and later the 澳洲幸运5官方开奖结果体彩网:McFadden Act of 1927, strictly forbade banks b🎀eing owned and operated acrossꦐ state lines

Regulations were eventually loosened after it became apparent that restrictions on interstate banking limited banks to regional expansioꦚn and left them vulnerable to local economic crises. The rising number of Americans traveling or relocating across the country also contributed to a rethink of the old rules, as mobile citizens found it difficult to gain access to banking services outside the local region in which they lived.

It was also discovered that many bank holding companies were getting around the prohibitions of the McFadden Act by acquiring 澳洲幸运5官方开奖结果体彩网:subsidiary banks in other states and then operating them in the same manner as they would normal branches.

History of Interstate Banking

The Douglas Amendment

More leeway was granted by the Douglas 澳洲幸运5官方开奖结果体彩网:Amendment to the Bank Holding Company Act of 1956. This particular legislation, introduced in the mid-1980s, allowed states to rule whether out-of-state bank holding companies would be permitted to establish, operate, and own banks within their borders. The 1985 court case Northeast Bancorp v. Board of Governors upheld this right.

Interstate banking grew in three separate phases, starting in the 1980s with regional banks. These companies are limited to a specific region, such as the Northeast or Southeast, and were formed when smaller, independent banks merged to create larger banks. In the 1980s, six states in New England passed legislation allowing for the formation of regional banks, followed shortly aftꦗer by banks in the Sou🏅theast and Midwest.

Eventually, 35 states agreed to enable banks from anywhere in the country to establish or acquire a bank inside their borders. Meanwhile, 14 states and Washington D.C. chose to allow only regional banking, while only one state, Hawaii, failed to pass neither regional nor national inte🅰rstate banking legislation.

The Riegle-Neal Act

By the 1990s, federal legislation was passed that sanctioned the establishment of nationwide banks, effectively giving the country's 澳洲幸运5官方开奖结果体彩网:financial institution (FIs) even more freedom to expand. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permitted banks that met 澳洲幸运5官方开奖结果体彩网:capitalization requirements to ဣacquire other banks in any other state after Oct. 1, 1995.

The Riegle-Neal Act further gave banks in different states permission to merge into nationwide branch networks after June 1, 1997. There were stipulations, though: Under the act, no bank holding company can control more than 10% of the total assets on deposit in the United States, nor can it control more than 30% of any single state's t🥀otal deposited assets unless a specific state had established a deposit cap of its own.

Individual statesℱ were allowed to opt-out of the branching provisions of the Riegle-Neal Act. Initially, Texas and Montana chose to take this route, before changing their mind and embracing interst💃ate branching. The Riegle-Neal Act repealed both the Douglas Amendment and the McFadden Act.

Criticism of Interstate Banking

Interstate banking paved the way for banks 🐼to become much larger in size. Nationwide bඣanking has its benefits, though not everyone agrees that the creation of mega-banks has been for the greater good.

Banking behemoths have been accused of lacking efficiency, being impersonal, displaying sluggish characteristics, and struggling to adapt quickly enough to market trends. Some 澳洲幸运5官方开奖结果体彩网:economists argue that banks wi🌠th more than a few billion dollars in assets often tend to fall 😼into this trap.