Md. urged to act on interstate banking

March 09, 1995|By David Conn | David Conn,Sun Staff Writer

Now that national interstate banking is imminent, state lawmakers were warned yesterday by bankers that Maryland had better jump into the fray now or risk putting the state's banks years behind the curve against out-of-state competitors.

But some legislators questioned whether throwing open the state's doors to out-of-state banks will doom the small community lender.

"The financial implications of this bill may imply that down the road there may not be community banks," said Del. David Rudolph, a Democrat from Cecil County.

The debate came in a hearing on House Bill 1328, which would enact full interstate banking this year, two years before aspects of the federal law will take effect.

That law, signed by President Clinton in September, has two parts. One, which takes effect in September, will allow banks to acquire competitors in any state. Maryland has allowed out-of-state acquisitions for about a dozen mostly Southern states since 1986.

What members of the House Commerce and Government Matters Committee discussed yesterday was the second part: Known as interstate branching, it will allow banking companies to venture across state lines to buy established single branches instead of entire banking companies; to build new branches; and to run their existing out-of-state operations as branches of the home state bank rather than as separate subsidiary banks, as the law now requires.

Interstate branching won't take effect until July 1997, according to the federal law. But states have a choice of permitting it before then, waiting until 1997, or forbidding it entirely. Several other states, including Virginia, already have opted in.

"In the absence of acting early, we believe you will put your state, your businesses and your constituents at a disadvantage," said John B. Bowers Jr., executive vice president of the Maryland Bankers Association, which drafted the bill.

The bill is necessary, Mr. Bowers said, even though several banks already have achieved interstate branching in Maryland and surrounding states by exploiting loop holes in the law, including NationsBank Corp. and First Fidelity Bancorp.

The bankers argued that interstate branching will save money as banks no longer will have to maintain separate boards of directors in each state and separate bank charters. Their customers will be able to do any type of banking business they want, in any state in which their bank has a branch.

Although no one showed up to oppose the bill, several lawmakers wondered about the threat that unrestricted interstate banking and branching could pose to Maryland's smallest community banks. "This sort of reminds me of the independent farmers that have been gobbled up by agribusiness," said Del. Adrienne Mandel, a Montgomery County Democrat.

Maryland Bank Commissioner Margie Muller said she supports the measure as long as the legislators accept several amendments that would give her office more authority.

As for the fate of Maryland's smallest lenders, she said it's not a concern. "Community banks' market share has grown every year since we got into interstate banking" in a limited way in 1986, Ms. Muller said. "They are the real heroes of interstate banking."

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