2 Interstate Banking Bills Clear Legislature : Action by Assembly Sends to Governor Measures That Would Open California to Eastern Banks

Both houses of the Legislature on Friday voted final passage to a compromise package that would fully open California to out-of-state banks by 1991.

The legislation was sent to Gov. George Deukmejian, who has not taken a position on the issue. But in earlier hearings, Administration officials testified that the governor supported the concept of opening the state’s financial borders.

The heavily lobbied compromise legislation consisted of two bills--one, by Sen. Alan Robbins (D-Van Nuys), which would allow California banks to expand into 11 Western states, and a second, by Assemblyman Charles M. Calderon (D-Alhambra), which would permit Eastern banks to expand into California.

Assembly Provides Last Action

As the Legislature rushed toward adjournment of its two-year session sometime this weekend, the Assembly late Friday night fit the final piece of the package together by voting 56 to 12 for the interstate bill. The night before, it had passed the regional measure by a lopsided 48 to 9.

On Friday, the Senate unanimously passed the regional bill, 22 to 0, and followed by approving the companion interstate measure, 29 to 3.

Deukmejian’s signature on the legislation would vastly increase competition among financial institutions in California, ending a nearly 10-year-old, high-spending battle by New York banks eager to enter what is considered the nation’s richest market for consumer financial services.

Even while supporters promised an array of consumer benefits, however, opponents, including Consumers’ Union, launched a last-minute, unsuccessful attempt to extract concessions from the Eastern financial giants.

Robbins, during debate on the Senate floor, hailed the vote in both houses as “something we can all be proud of” and promised that consumers would soon see higher interest rates on deposits and better terms on loans as institutions gird for the competitive battle ahead.

“This will mean California’s financial institutions will become the leading institutions throughout the West and help make Los Angeles and San Francisco the commercial capitals of the U.S.,” Robbins said.

Others expressed concern that the entry of the money center banks of New York would cause some small banks and troubled savings institutions to fail.

The compromise, contained in the two bills, was hammered out between banking industry giants over the past few weeks after California savings and loans dropped their earlier opposition to nationwide banking and joined in endorsing the effort.

The measures would allow banks and other financial institutions in 11 Western states to enter California beginning next July, so long as those states allow California institutions to operate there. Then, in 1991, banks outside the West would become eligible to move into California on the condition that the other states pass legislation allowing California institutions to do business in their home territories as well.

An estimated 38 states already have interstate banking laws.

During successive debates over two days, opponents in both the Assembly and Senate sought to insert provisions, recently stripped from the compromise bills, that would have required incoming institutions to finance low-cost housing and to guarantee loans to financially strapped farmers. But those efforts were turned down on lopsided votes as supporters argued that states ought not to set conditions on the entry of new banks.

“If we impose conditions on investing in California, then California banks will have the same conditions imposed on them (in other states),” warned Senate President Pro Tem David A. Roberti (D-Los Angeles).

‘A Free Ride’

But Sen. Nicholas C. Petris (D-Oakland) noted that other states have imposed similar conditions on New York banks while California “is giving them a free ride.”

“In one state,” he said, “Citicorp came in with a credit card operation and was required to build a 10-story building and provide 750 jobs. What are we requiring? Not a mezzanine, not even one job.”

In the Assembly, the fight centered on allegations by members of the rural caucus that Citicorp had acted unfairly in seizing $34 million in assests from the ailing Knudsen Corp., the West’s largest dairy.

Assemblyman Rusty Areias (D-Los Banos), a dairy farmer himself, contended that the money seized by the banks was owed to thousands of dairy farmers who now face financial disaster. “It’s corporate irresponsibility and corporate insensitivity,” Areias charged.

But in an argument apparently supported by most Assembly members, Assemblyman Alister McAlister (D-Fremont) declared that “banks are not charities. They are not in the business of going around and simply giving money away.”

Federal Depression era laws prevented most banks from crossing state lines, with a few exceptions. But the U.S. Supreme Court over the years has punched several large holes in the law, allowing banks to set up limited operations elsewhere so long as they take deposits or make loans, but not both.

Pressure on Congress

The loophole, however, encouraged many of the big banks of the East, and some large Western banks as well, to begin acquiring financial institutions all over the country as a prelude to full nationwide banking.

With the bulk of the states having either approved nationwide banking regulations or in the process of considering them, most banking industry experts expect Congress to step in and lift the half-century-old laws that now restrict where banks can do business. Should the California legislation become law, many believe that it will increase the pressure for Congress to act soon.

That could make California’s regulations moot. But supporters of the bill argue that simply having such a law on the books would force California institutions to do more for their customers in anticipation of the new competition they would soon face.