Of all the elements comprising the president's banking reform package, interstate branching is the sleeper that looks like a shoo-in during this session of Congress.
Who could oppose a streamlining of regulatory authority at a time when bank losses threaten to spill onto the shoulders of the taxpayer? How can anyone mount objections to the removal of artificial barriers to the interstate flow of financial transactions when funds can circle the globe in seconds?
Bank holding companies already own banks across state lines; why not let them convert those separate subsidiaries to branches of the headquarters bank?
It all seems to make such good sense that members of Congress pay little or no attention to the state officials who urge caution, but who lack the clout of bankpacs or the strong convictions of hometown constituencies. What are state officials trying to say?
Interstate banking laws under the Douglas Amendment to the Bank Holding Company Act of 1956 allow states to decide whether to allow entry, the conditions of entry, and the subsequent behavior of acquired banks.
Compliance with state credit laws, branch expansion and community reinvestment are among the activities monitored by host state regulatory authorities. And acquired banks -- not branches -- must pay franchise taxes in their host states, more than $10.8 million out of the $38 million collected by Maryland last year.
The Maryland General Assembly enacts banking legislation each session, some of it necessary to keep pace with technology, such as ATM monitoring; other bills to meet changing market needs, along with laws to assure competition among providers of financial services as in our interstate banking statute.
Throughout the year, the industry's trade association provides information and background data to lawmakers as a lobbying effort to generate support for its positions and discourage frivolous or burdensome regulation.
The banks individually and through their organization have helped to maintain a legislative environment that has been conducive to orderly change with innovation that addresses the unique needs of the Maryland marketplace.
That resource will be much diminished if 15 Maryland banks are enabled to give up their charters and become merely branches of banks in Virginia, New York, Pennsylvania and North Carolina. Those 15 represent 28.5 percent of all Maryland bank assets.
Are their out-of-state head offices going to be very interested in Maryland legislation when Congress simply pre-empts state ,X banking laws?
Worse, what's to stop any Maryland bank from moving its headquarters out of state, converting to a national charter and leaving its branch systems to operate in the state with no local authority at all?
If the proponents of interstate branching -- primarily the dozen or so largest bank holding companies in the U.S. -- want to save billions of dollars of operating expense and comply exclusively with uniform federal regulations established under congressional law, the only way to meet these objectives is to deprive the states of revenue and their lawmakers of legislative authority.
Sponsors' promises to maintain states' franchise taxes and legislative prerogatives by amending the measures have no credibility. For every such concession there's loss of the very economies the megabanks claim as their objective.
There's nothing wrong with the president's desire to see big U.S. bank holding companies consolidated into institutions large enough to return to the list of the world's top ten. But that's already possible through acquisition under states' interstate banking legislation. Interstate branching isn't necessary to achieve size.
Interstate branching would provide economies of scale for those megabanks only if they could save on state taxes, expense of multiple boards of directors and administrations, state reporting requirements and pre-emption of states' banking legislation.
The demise of the dual banking system that balances state and federal authority is a large price to pay for the benefit of so few.
Margie Muller is Maryland State Bank Commissioner.