Washington State's community banks, preparing for the advent of interstate branching, are pressing for tighter caps on market share of deposits.
The Washington Independent Community Bankers Association crafted the market share plan last week while deciding to support the federal interstate branching law. The law, adopted last year, allows states to "opt in" or "opt out" of the provisions, and many state legislatures are about to tackle the issue.
The Washington group is evidently the first to use deposit share as a bargaining chip in interstate branching, but others are expected to follow. Missouri could be the next state to see a market share debate.
The Washington independent bankers have yet to specify a limit on deposit share. But it clearly would be lower than the one prescribed by the branching law: 30% in any one state.
For community bankers, the issue is important because in a state dominated by large regionals, such as Washington, one merger could result in one company controlling 30% of the state's deposits. Such market share allows large banks to unduly control pricing, some banks argue, and is uncompetitive.
In pushing for share caps, however, the group could upset some banks in the state, even community banks, said Bruce Koppe, executive vice president of the Washington Bankers Association. That organization represents both community banks and multistate banks doing business in Washington.
First Interstate Bancorp, Keycorp, BankAmerica Corp., and U.S. Bancorp together have the majority of banking assets in the state, and any one could reach the deposit market share limit if it is reduced.
"The banking community is best served by common positions on these things," Mr. Koppe said. "Every time the banking community has gone into these things with opposing messages it hasn't worked out well."
The Riegle-Neal interstate law allows national banks to branch across state lines, but not in those states that pass legislation to opt out of the federal law.
The states are also allowed to pass legislation to opt into the law, which would accelerate its effects and allow state-chartered banks to branch across state lines. In addition, the state's can pass mitigating legislation, such as new tax laws, regulating national banks that branch into the state.
The Washington legislature and a number of others are expected take up the federal interstate law in the coming weeks.
The market share caps proposed by the Washington independent bankers are part of a broad legislative package that the group is backing in response to the branching law.
The package also calls for closing loopholes that allow banks to avoid business and occupation taxes - a major chunk of state revenues - if the banks don't have a head office or credit administration facilities in Washington.
Branch-by-branch policing of community reinvestment laws and the public posting of loan-to-deposit ratios are also being proposed by the independent bankers.
"We have been concerned about some of these issues since long before interstate branching," said Mike Edwards, the former state bank commissioner who is president of the Washington Independent Community Bankers Association.
"With 84% of the state's deposits held by out-of-state institutions, we feel a discussion about the impact of out-of-state deposits would be met with some favor," he said.
In Missouri, meanwhile, independent banks have lined up strongly against opting into the federal interstate law.
"We're making it a priority issue this year," said Jerry Sage, executive director of the Missouri Independent Bankers Association. "The (Missouri Bankers Association) has taken positions on a lot of other issues, including the ban on de novo branching, five-year charter age on acquisitions, and the deposit threshold, but not on opting in."
Mr. Sage said his group would oppose any efforts to link opting out of Riegle-Neal to the state's current 13% deposit market share threshold, which many large banks in the state, especially Boatmen's Bancshares, have bristled at for years.
Privately, however, several players have said that the large banks in Missouri would not oppose opt-out legislation if there was a weakening in the deposit market share limits.
"All politics is a matter of compromise," a state lobbyist for community bankers said of the opt-out, market share linkage. "It's something that we are considering."
