House and Senate conferees last week ironed out the details of an extensive interstate banking bill. Absent an extended challenge over one issue specific to Texas, Congress is expected to pass a law that will allow banks in all states to acquire banks anywhere else, after a one-year delay; and will allow banks with operations in several states to treat all their subsidiaries as branches of one bank, rather than separate subsidiary banks. That would occur in 1997.
The bill allows individual states to exempt themselves. How would this law affect banking institutions and consumers in Maryland?
Arnold G. Danielson
President, Danielson Associates, Rockville
One of the big things about interstate banking is not so much the mergers, but that people can consolidate their operations across state lines.
It'll make smaller Baltimore acquisitions more attractive than they used to be because they no longer have to be stand-alone. In other words, a small Baltimore bank with three or four branches would have been less attractive to a Philadelphia bank when it had to operate it as a stand-alone.
Larger banks I don't see it changing the ballgame much. The part that will change is that any bank like Signet that operates in both Maryland and Virginia, was off-limits to banks in Pennsylvania because of Virginia's limits. Now the list of potential acquirers expands extensively.
Signet and Crestar's potential acquirers just grew from essentially three in North Carolina to three or four more in Ohio and Pennsylvania, which makes for a better market.
The big aspect is down here in Washington -- the very fact that banks can operate in three different markets. This is going to allow them to become much more cost efficient.
In terms of regulation, the state certainly lost control over thrift branches, and in time the states are going to lose control over bank branches. The small and mid-sized banks will tend to stay within the state [regulatory] system.
Finally, the Southeast banking compact is history. Aside from border states, it's not going to make much difference. But you're in a border state.
Maryland Bank Commissioner
I've had mixed feelings about this, as I suppose everyone has.
Interstate banking will be possible beyond our region in the first year. But interstate branching won't happen until 1997. And the reason for that is that Congress was persuaded by people like me among others that it takes a long time to set up a tax structure.
We are not a manufacturing business. Banks have nothing tangible, nothing manufactured. The commodity is money. The General Assemblies of Maryland and other states are going to have to figure out how they're going to tax the earnings of banks in other states.
Another reason for the [extended] time is that most states have legislation on their books about interstate banking, and even branching within their states, and they're going to have to figure out how to deal with that.
The consumer probably won't feel the first phase of interstate banking because we've already got it. We have NationsBank, we have Crestar, Signet, First Union. We also have [Maryland] banks operating in Pennsylvania, in the District and Virginia, and some into Delaware.
The only change that I would see that would affect the consumer is if there was no competition for their business, and I don't see any lessening of competition.
I think the business community may find more competition for their business, and I think the larger banks, that are doing most of the consolidating and most of the expanding, will be wooing and winning more business customers.
I think that the small banks in Maryland, at least, and other states where there has been interstate banking, have had a good taste of what that's like.
I don't see small banks just folding their banks and disappearing. This is really more a transition than a revolution.
President, Provident Bankshares Corp.
I don't think it's going to have any immediate effect, certainly on us. We already have large interstate competitors in Maryland.
Our concern was that the bill go through relatively clean, and that it not contain more burdensome regulation as part of it. And it did go through, and there appears to be considerable regulatory relief in the bill. So we're pleased with that, because we do need regulatory relief, in terms of the paperwork, as opposed to the necessary regulation.
As for the consumer, the party line is that there are going to be lower prices and higher interest rates. But I don't think that's true.
Small banks compete through flexibility and knowing the local market, and large banks have economies of scale. So I don't think that's going to change the market.