by John W. Bay, Associate Professor of Economics, University of Southern Maine
In September 1994, Congress passed and President Clinton signed the Riegle-Neal Interstate Banking and Branching Efficiency Act. The Act, which became fully operational June 1, 1997, permits national banks to branch interstate unless states enacted legislation to prohibit it before that date. It provided a time span of almost three years for states to take action on a number of aspects related to interstate branching. Among these are the following:
1. As mentioned earlier, states could "opt-out" if they did not wish to participate in interstate branching as long as they did so before June 1, 1997. States could also "opt-in" and extend to state chartered banks the same interstate banking privileges accorded national banks. States were permitted to "opt-in" earlier than June 1, 1997.
2. The Act only allows interstate branching through the merger of one bank with another. It was up to the states to determine if they wished to allow de novo branching -- permitting an out-of-state bank to establish a branch in the state.
3. The Act permits states to decide whether or not an out-of-state bank can acquire a branch or branches of an existing bank or if it must acquire the entire bank.
4. Finally, the Act allows states to establish a requirement of up to five years for a bank to have
been in existence before it could be acquired by an out-of-state organization.1
What Did Maine Decide, and How Does It Compare with Other States?
The following comparison is based on data through March 27, 1997 generously provided by the
Conference of State Bank Supervisors.2 As of that date, forty-six states had enacted legislation on
the four provisions of the Riegle-Neal Act described previously.
Opt-in or Opt-out?
Maine along with forty other states decided to "opt-in," and three additional states, while not
explicitly authorizing interstate branching, established conditions on interstate branching in their
states. Only two states, Montana and Texas, enacted legislation to "opt-out." Twenty-three states
had an effective date in either 1995 or 1996 (Alaska's law predates the Riegle-Neal Act); twenty
other states, including Maine, chose an effective date in 1997. Since virtually all states will be
involved in interstate branching, further consolidation in banking will occur. Nationally, we will
see additional mergers of different banking organizations across state lines, and we can expect to
see some multiple bank holding companies merging their banks in various states into a single or
smaller number of banks. For example, KeyCorp's banks, which includes Key Bank of Maine,
will be consolidated into a single national bank.3
Permit De Novo Branching?
The vast majority of states (32) decided against permitting de novo branching and thus, in those
states, interstate branching will only occur through merger. Maine along with eight other states
including three New England states (Connecticut, Massachusetts, and Rhode Island) permit de
novo branching, but only on a reciprocal basis. Three other states allow for de novo branching
differently from Maine.
Allow Acquisition of a Branch Only?
Twenty-seven states will not allow the acquisition of a branch only, whereas Maine together with
thirteen states including four other New England states (Connecticut, Massachusetts, Rhode Island,
and Vermont) permit it without reciprocity. Another three states will permit the acquisition of a
branch only on a reciprocal basis.
Minimum Age Requirement
Five years, the maximum allowed by the Act, was the most common minimum age provision
among the states (26). In those states, therefore, a bank would have to be in existence for a
minimum of five years before an out-of-state organization could acquire it. Fourteen states
including Maine and Rhode Island were at the other end of the spectrum and set no age
requirement with the remaining states having a three year requirement.
Overall
Half the states participating in interstate branching established the most restrictive requirements
allowed by the Act in that they do not permit de novo branching, do not allow the acquisition of a
branch only, and have set their minimum age requirement for an acquisition to be five years.
Maine and six other states have the least restrictive requirements in that they permit de
novobranching (either with or without reciprocity), allow the acquisition of a branch only without
reciprocity, and have no minimum age requirement. Other states fall somewhere in between.
Sources Cited
1 Maine Bureau of Banking, Report of Maine Task Force on Interstate Banking and Branching(November 30, 1995): 4-8, Appendix E.
2 Conference of State Bank Supervisors, Washington, D.C., "Status of Interstate Branching Legislation in the States" (March 27, 1997).
3 John Porter, "Key Bank to Reduce Branches but Avoid Layoffs", Portland Press Herald(November 26, 1996): 1A.