NationsBank Corp. may have found a way to do what the Congress has forbidden: operate one bank across several state lines.
The Charlotte, N.C., company, now Maryland's largest banking company, this week applied to federal regulators for the right to do a two-step maneuver that would merge a bank it owns in Washington with one in Maryland. If approved, the company would own a bank headquartered in Maryland that has branches in the District of Columbia, and maybe Virginia at some point.
Until now, all bank holding companies that operate in more than one state have had to establish separate "parent" banks in each of those states. That's why NationsBank has 10 different banks under its corporate umbrella, one for each of the states in which it operates, plus Washington.
"The reason [for the application] is that the way banks are organized, customers cannot transact their banking business across state lines," said Executive Vice President Joseph B. Martin, NationsBank's principal corporate affairs officer. "A customer, say, who lives [and banks] in the District but works in Maryland can't deposit a paycheck in Maryland," which is where she spends her time during banking hours.
"Of course, it reduces our costs," Mr. Martin added.
The current law requires separate boards of directors, separate audit teams and separate financial reports filed with state and federal regulators. NationsBank has said that by allowing interstate branching -- one headquarters bank with branches in many states -- the industry could save $50 billion a year in excess operating expenses, money that could go to depositors, borrowers and stockholders.
Credit unions and savings and loans are mostly free of those restrictions. And some members of Congress are showing renewed enthusiasm for lifting the ban on interstate branching. That could explain the timing of NationsBank's application.
Banking consultant Bert Ely says the restrictions are crazy. "We'd be like the Balkans if we had interstate branching restrictions for other kinds of businesses," he said.
Still, some fear that allowing unrestricted branching across state lines could leave banks unaccountable for their actions in any but their home states.
"It is very tricky in the sense that it really does 'end-around' the interstate branching prohibition," said Maryland Bank Commissioner Margie Muller. She said the federal regulator, with more than 4,000 national banks to look after, would be unlikely to respond to consumers' complaints about one or two branches in Maryland. If the NationsBank plan is successful and other banks emulate it, she said, "we'll have . . . banks operating here with nobody watching over them."
NationsBank's plan, filed with the federal Office of the Comptroller of the Currency (OCC) on Tuesday, involves a 107-year-old law that allows banks to move their headquarters up to 30 miles away, assuming they have a compelling business reason to do it. In 1959, the law was amended to allow such moves even across state lines.
In this case, NationsBank would move the headquarters of American Security Bank from Washington into Silver Spring. Then, it would be merged into Baltimore-based Maryland National Bank. (Eventually, Maryland National will be known as NationsBank of Maryland as a result of the purchase of its parent company, MNC Financial Inc., by NationsBank.)