Nearly 2,200 branches operated by the nation's largest banks are exempt from a government plan to impose community reinvestment- like standards on institutions branching across state lines.
Last week the banking agencies proposed a rule that would require out- of-state bank branches to maintain a loan-to-deposit ratio equal to half the average of all banks based in the state. Failure to meet this lending standard could prompt the branch's closing.
While the 1994 interstate banking law requires this rule, it exempted out-of-state branches authorized under different laws or rules. Slipping through this loophole are 40 national banks-including First Union Corp. and NationsBank Corp.-that got a jump on interstate branching under the so- called 30-mile rule.
This rule allows a national bank to move its headquarters 30 miles. If the headquarters is within 30 miles of a state border, this lets the bank establish itself in a second state, keeping its old offices as branches.
These loophole banks have established 2,167 branches holding $77.4 billion of deposits, and all would be exempt from the proposed loan-to- deposit rule.
If compliance with the new rule proves costly, the exempted branches could gain a competitive edge over state-chartered banks, which cannot take advantage of the 30-mile rule, said Neil Milner, president of the Conference of State Bank Supervisors.
Congress has said the new rule should not add to banks' regulatory burden, but regulators admit that existing disclosures might not supply sufficient data to comply. Assigning loans and deposits to particular branches may be problematic. For instance, banks often centralize lending and don't code loans by branch. And some customers may not live near the branch where they deposit their funds.
Bankers consider the proposal duplicative of the Community Reinvestment Act, but they do not expect it to add much to their costs, said Michael Van Buskirk, executive vice president of the Ohio Bankers Association.
The new rule is designed to prevent banks from crossing state lines and funneling deposits from their home areas into loans in other states. Full- scale interstate branching begins in most states June 1.
James D. McLaughlin, director of regulatory affairs for the American Bankers Association, said the exemption for national banks that branched across state lines by moving 30 miles is not important because the banks are still serving the same community and thus would not be draining deposits.
"There is not the kind of opportunity for siphoning that was envisioned in the statute," he said.
