Interstate branches possible Fed loophole may let banks expand over borders

February 27, 1992|By Barbara A. Rehm | Barbara A. Rehm,American Banker

NEW YORK -- Experts in banking law say the Federal Reserve Board, by easing a long-standing policy on bank relocations, has opened the doors wider to interstate branching.

The ruling last week broadened a loophole that had allowed national banks to move their headquarters up to 30 miles, even across state lines.

It could provide an end run around a Congress reluctant to extend branching rights without something in exchange from the industry, such as providing banking services to the poor.

The Fed actually was left with little choice. A federal appeals court ruled in December that the nation's central bank did not have the power to prevent a bank in Alabama from leapfrogging into Georgia.

The case pitted SouthTrust Corp. of Birmingham, Ala., against Synovus Financial Corp. of Columbus, Ga. SouthTrust asked regulators in 1989 for permission to move the headquarters of a subsidiary from Phenix City, Ala., across the river to Columbus. Synovus and the Fed objected.

SouthTrust sued, claiming the Fed lacked authority to block the move. On Dec. 20, the U.S. Court of Appeals for the District of Columbia agreed with SouthTrust, saying the Office of the Comptroller of the Currency had jurisdiction over the relocation of a national bank.

Then, on Feb. 18 the Fed, historically a defender of bans on interstate branching, sent the letter to U.S. Bancorp, of Portland, Ore., which exploited the 30-mile loophole to enter Idaho. The Fed told the Oregon company it no longer needed Fed approval.

On Feb. 21, the Justice Department informed the appeals court of the Fed's action.

"It would seem that once you had a branching structure in one state you could move your headquarters to an adjoining state and begin to develop a branch network in it," said Michael Bradfield, now with the law firm of Jones, Day, Reavis & Pogue and formerly the central bank's general counsel. "At least theoretically you could continue to do that spreading across the U.S."

Said David Roderer, a partner with Jones, Day in New York: "The theory of it is you could leapfrog across the country; you could start in Delaware and go to California."

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.