The onset of interstate branching June 1 will test the dual banking system as never before. No one knows this better than the men and women who gathered here last weekend for the Conference of State Bank Supervisors' annual convention.
Since Congress enacted the interstate branching law in 1994, state banking departments have worked together and with federal regulators to keep state banking competitive with the national charter.
Last fall, all 50 state banking departments agreed to centralize supervision in the state where a bank is headquartered-even if the institution operates in a dozen states.
"We are, by the very nature of the agreement, giving up a bit of sovereignty," said Earl L. Manning, commissioner of Missouri's Department of Finance and 1996 chairman of state of the state regulators group. "But it was in our long-term best interest to do it."
Mr. Manning Saturday handed leadership of the group to G. Edward Leary, commissioner of the Utah Department of Financial Institutions. "Our lot, in working together, is made better," Mr. Leary said. "Cooperation helps all of us."
But as Neil Milner, the group's president, acknowledged: It's one thing to make a deal and another to live by it. "The easy part is behind us," he told the regulators. "Making it work is obviously the next phase."
In addition to the nationwide supervision pact, state regulators have been working with the Federal Reserve Board and Federal Deposit Insurance Corp. to develop a common state exam.
At the convention, federal and state regulators announced they would use the same automated exam to evaluate all 6,802 state-chartered banks whether they are supervised by the Fed, the FDIC, or a state banking department.
The standardized exam, which will go into use Oct. 1, is phase two of the state supervisors' strategy to protect state-chartered banks, which hold 45% of the industry's assets.
"For the state banking agencies, it's a huge boon," said Ellen C. Lamb, vice president of communications at group. "It would have been prohibitively expensive for the states to support both platforms."
"Both platforms" refers to the separate automated exams the Fed and the FDIC had been developing. The Fed's Examiner Workstation and the FDIC's Alert system are being integrated to create the standardized exam system, called Elvis. (Don't ask.)
The state regulators, the Fed, FDIC, and the Office of Thrift Supervision also will standardize off-site reviews of loan portfolios. The agencies have agreed on 85 pieces of data that will be downloaded from banks and thrifts before an exam begins. In addition more of the exam will be done off-site, saving bankers time and money. (The Office of the Comptroller of the Currency is still considering whether to join in.)
During the convention, state regulators also agreed to use the same form for three common filings: applications to change control of a bank or to change its officers or directors and the personal financial statements bank leaders must submit. "The basic applications have now been standardized," Mr. Leary said, adding that federal agencies will accept these forms soon.
"One thread ties together our efforts," FDIC Chairman Ricki Helfer said. "We are all seeking to change with a changing world to ensure the strength of our dual banking system."
The House Banking Commitee's financial institutions subcommittee is to vote Wednesday on changes the state regulators group wants made in the 1994 federal banking law.
Under the amendments, a state-chartered bank branching into a second state would have the same powers as host-state or national banks.
Without the amendment, state banks could be forced to follow different laws in various states, which would make the consistency of a national charter more attractive.
"Some banking lawyers are advising clients to take a national charter to avoid the uncertainty." Mr. Leary said. "We must get those amendments."
Ms. Helfer and Fed Chairman Alan Greenspan, speaking via satellite Saturday, used their speeches to the convention to defend their agencies from certain financial reform proposals.
"Some have questioned not only the need for umbrella supervision but also the need for the Fed's involvement in such supervision," Mr. Greenspan noted. "In order to carry out our systemic obligation, the Federal Reserve must be directly involved in the supervision of banks of all sizes."
"The political independence of the FDIC must be preserved," Ms. Helfer said, warning against privatizing deposit insurance or watering down the agency's authority.
Though consolidating the federal agencies is not now under serious consideration in Congress, both regulators spoke out against it.
"A single federal regulator would become rigid and insensitive to the needs of the marketplace," Mr. Greenspan said. "One person does not have all the answers," Ms. Helfer agreed.
Answering questions after his speech, Mr. Greenspan advised regulators to stand clear as electronic banking develops. "We must be very careful not to impose any regulatory structure too soon," he said.
The theme of the convention-"Crossing Borders, Building Bridges"-was well-suited to the site. The historic Hotel del Coronado is reached by crossing an awesome two-mile-long bridge from which Mexico is visible.
Mr. Milner, president of the state supervisors' group, reported that interstate branching has been approved in 44 states. Two have delayed implementation: Texas until 1999 and Montana until 2001. In the four states that have not acted-Kansas, Michigan, Missouri, and Ohio-federal law will automatically kick in June 1.
During a session Friday with federal regulators, several state bankers opposed congressional efforts to allow mergers with nonfinancial companies.
"We ought to take a go-slow approach on banking and commerce," said Richard Spillenkothen, the Fed's director of banking supervision and regulation. "Let's allow broader financial powers and see how that goes."
Still, Mr. Spillenkothen told the bankers to "recognize it's inevitable."
"The train is moving, and it's picking up speed," agreed William F. Grant, director of banking relations at the Office of the Comptroller of the Currency.
The federal regulators insisted they are doing everything within current law to help banks remain competitive. "We know the financial system is changing, and we're working to keep up with it," Mr. Spillenkothen said.
"Bottom line, we are doing all we possibly can, and we're getting criticized for it," Mr. Grant said, referring to Comptroller Eugene A. Ludwig's May 1 appearance before a Senate Banking Committee panel. "Maybe you'd like to testify for us."
Mr. Grant, as an advocate for national banks, was clearly in the minority at the convention. But he said the OCC wants to work with the states. "We've missed the opportunity to work together in the past," he said. "We think the banking industry needs us both."
Robert A. Richard is leaving after 21 years with the state regulators. While no departure date has been set, the group's senior vice president said he'll be gone by Oct. 1.
Mr. Richard, who was acting president for six months last year, was praised by the likes of Mr. Greenspan before receiving a standing ovation from the crowd at one of the convention's general sessions. Asked what's next, he said he does not know but will continue to work.
The FDIC unveiled an updated version of its Institution Directory, or I.D., at the convention.
I.D. provides Internet access to the agency's vast data base of statistics on banks and thrifts. Financial and demographic information can be sorted by institution size, location, charter type, and other factors.
The latest version of the software also lets users sort by performance factors such as return on assets.Banks can use the program to conduct peer- group review analysis. The updated program lets data be downloaded for use in spreadsheet programs.
The new program also makes it possible to find out what company owns a bank and which other banks are part of the family.
The system is used about 4,500 times a week, according to Donald E. Inscoe, associate director of the FDIC's research division.
"We've got a mix of businesses and consumers looking at it," he said.
Ms. Helfer also announced that a secure Internet connection soon will be established for quick access by state banking departments to confidential data from the FDIC.
