Panel Shelves Bill to Let Eastern Banks Into State Next Year

Despite heavy lobbying by major New York banks, the Assembly Finance and Insurance Committee shelved legislation Thursday that would have allowed East Coast banks to begin full-scale operations in California next year.

Citicorp and the Chase Manhattan Bank, which have already won approval from the Legislature to open full-service banks in California in 1991, lost their bid to begin competing against foreign-owned companies as early as next year for the acquisition of California banks. They contend that foreign firms are buying California banks at an alarming rate.

The legislation was strongly opposed by Wells Fargo and other California banks, which argued that the state’s financial institutions need until 1991 to prepare for competition from the giant banks of New York.

“We ought to let the clock run to Jan. 1, 1991,” agreed Assemblyman Patrick Johnston (D-Stockton), the committee chairman. “There is not a compelling case to change that date and upset the expectations, plans and business of California institutions.”

By a vote of 14 to 1, the committee voted to give further study to a bill by Assemblyman Ross Johnson (R-La Habra) that would have allowed all out-of-state banks to compete with foreign-owned firms in acquiring California financial institutions. The vote to study the measure is tantamount to rejection.

The committee took no action on a more sweeping bill by Assemblyman Charles M. Calderon (D-Alhambra) that would have allowed all out-of-state banks to begin operating in California any time foreign companies own more than 25% of the assets of California banks.

Advocates of the two bills contend that foreign firms now own as much as 36% of the assets of California banks.

After Johnson’s bill received only minimal support, Calderon chose not to take up his measure. That leaves his bill in jeopardy because it will not win passage before today’s Assembly deadline for committee action.

Either measure would have substantially altered a 1986 law that will allow out-of-state banks to compete fully in California by 1991. The legislation was based on a compromise between California and New York banking interests, which had been battling each other for more than a decade.

Now, the New York banks argue that foreign companies have an unfair advantage under the law.

“If we did not have a U.S. flag flying over our headquarters in New York, we could be doing business here today,” Fred Taugher, a spokesman for Chase Manhattan Bank, told the committee.

Current law permits a foreign business to operate a financial institution in California if it establishes California as the bank’s headquarters. But, for Citicorp or Chase Manhattan to operate in California would mean moving their headquarters here from New York.

Under the bill, banks in 12 Western states were able to begin operations in California last year, provided those states also allowed California to operate there. All U.S. banks, including those on the East Coast, already are allowed to make loans, but beginning in 1991 will be permitted to take deposits as well.

Advocates of the legislation said Japanese firms, in particular, have taken advantage of the trade deficit and falling value of the dollar to buy up banks in California.