Suit by Giant Citicorp Casts a Shadow Over Regional Interstate Banking
A question mark hangs over regional interstate banking in the wake of a lawsuit by New York banking behemoth Citicorp. Despite the legal challenge, more than a dozen states are poised to consider regional banking this year.
Maine fired the first volley against restrictive state banking laws when it invited any bank into Maine in 1978. But since then, only Alaska, and New York with some restrictions, have opened their borders.
Now, instead of asking everyone in, states in the South and New England are opting to form regional zones, which allow only banks within the territory to pour across state lines.
Lock Out Formed
There the battle lines form.
The zones lock out the nation’s biggest and most formidable competitors--Citicorp, Chase Manhattan and other New York and California superbanks.
“We call it the Balkanization of banking,” said John Maloney, a vice president for Citicorp. “We’ve got international banking. Why shouldn’t we have national banking?”
Virginia recently became the 10th state to pass a law allowing regional banking, beginning this July. At least 14 more state legislatures are considering regional banking this year.
Citicorp, the nation’s largest bank holding company, has vowed to block regional zones anywhere in the country.
The Supreme Court has agreed to decide the question and is scheduled to review three proposed regional interstate mergers between banks in Massachusetts and Connecticut.
The Supreme Court action also puts on hold the planned July consolidation of Sun Banks of Florida and Trust Co. of Atlanta, which would create the second- largest bank holding company in the South.
The court is expected to review the Citicorp challenge in April.
Joel Wells, chairman of Sun Banks in Orlando, Fla., said he doesn’t believe the Citicorp suit will scuttle his merger because even if the Supreme Court forbids regional banking, Congress will act.
Allows Regional Compacts
The Senate passed a bill allowing regional compacts last year, but it was killed in the House.
“There’s a lot of momentum in Congress right now to step in and settle the matter,” Wells said.
Wells, like most Florida bankers, is convinced that full interstate banking is just a few years away. He favors regional pacts for a period of years so that native banks in deposit-rich Florida can protect their markets while growing in size before the giants swoop in.
Most big banks in the South admit they are also looking for partners so they will not be swallowed up when full national banking arrives.
Citizens and Southern Georgia Corp. in Atlanta announced in February it will pay $500 million for Landmark Bank of Fort Lauderdale, in the second regional interstate merger in the South. As with the Sun Banks merger, the new headquarters will be in Atlanta.
Southeast Bank in Miami and First Atlanta Corp. also tried to reach an agreement, but couldn’t get together on financial details.
“What we’re all trying to do, Sun, Southeast, NCNB, Barnett or whoever, is get significant in size quickly so we all will be in the finals and then see how we do,” Charles J. Zwick, chairman of Southeast, said recently.
Frantic Mergers
Citicorp’s Maloney says such frantic mergers are an overreaction to “this idea that Citicorp would come and we would drive people out of business in two minutes.
“It’s no magic thing we have . . . the idea you can beat the competition that easily is simplistic,” he said.
However, Citicorp proved itself a fearsome contender in the 1970s when it became the first to install 24-hour automatic teller machines in its New York branches. It proved itself again in the areas of mortgage lending and student loans.
States in New England and the South have been the most aggressive in creating regional zones. Utah started a zone in the West, but no other states have joined. Its area includes all states west of Colorado, including Alaska and Hawaii, but excludes California.
Virginia is the fifth state to join the Southeast zone, opening up a new market for banks flush with cash in Florida, Georgia and the Carolinas. Like most of the states, Virginia’s law only permits interstate banking with states that have passed reciprocal bank laws.
Meanwhile, at least 14 other states, plus the District of Columbia, are considering similar regional interstate banking laws.
The legislature in Tennessee is debating a bill that has the support of the governor.
Some ‘Opposition’
“There is some opposition to it by some of the independent banks, but others support it,” said Bob Gilliam, executive vice president of the Tennessee Bankers Assn. “I would think it will pass.”
Other states where bills have been filed are Arkansas, Idaho, Indiana, Maryland, Missouri, New Mexico, Oregon, Washington, D.C., Nebraska and Nevada. Texas and Michigan also are likely to debate the issue, according to the American Bankers Assn.
On the other side, four states are debating whether to go to full interstate banking this year.
“A lot of these states have begun to rethink things. They wonder if they have been too responsive maybe to a small number of bankers whose only idea is to restrict competition,” said Citicorp’s Maloney.
New Hampshire lawmakers are considering a bill patterned after Maine’s law that would open the state to any bank. Arizona and Washington are considering similar national measures. California also is expected to debate the issue.
The ABA finally took a stand on interstate banking Feb. 15, 1985. It recommended that states that form regional pacts also include a trigger in their laws to allow full national banking after five years. Five years is plenty of time to “grow,” the ABA said.
Rhode Island and Kentucky laws already have such triggers. They permit full national banking in 1986.
