The reasons range from cost to culture — state banks pay less for supervision and many complain federal examiners paint with too broad a brush, ignoring local conditions.
The trend has profound implications for the nation’s decades-old dual banking system.
“It is being redefined,” says John Ryan, the president and CEO of the Conference of State Bank Supervisors. “I am not entirely sure how, but I worry it will look more like a polarized system than a system of choice.”
Since 2000, the number of banks supervised by the Office of the Comptroller of the Currency has plummeted 43%, to 1,349. Over the same period, the number of state banks has fallen by 18.5%, to 5,064.
Mergers and failures have whittled the ranks of national and state charters. But choice has played a role, too. Since 2000, nearly 300 banks have turned in national charters for those issued by a state. Over the same period, 92 state banks converted to a national charter.
“It has been a silent migration,” says Jeff Gerhart, the president and chief executive of Bank of Newman Grove, Neb., which converted to a state charter. “It hasn’t made headlines. But there are more banks either doing it or talking about it across the country.”
Even though he is part of the trend, Gerhart worries about the ramifications.
“If smaller banks go to the states and the larger banks go to the OCC, at the end of the day I don’t think that’s a good thing for the dual banking system,” says Gerhart, who is the Independent Community Bankers of America’s chairman-elect. “Choice is paramount.”
For too many community banks, he says, a national bank charter is no longer a choice in light of the OCC’s one-size-fits-all approach.
“We ought to have a similar atmosphere across the regulatory spectrum,” he says. “It does not mean someone is going to go easy on you, but it is certainly good to be with an examination force that understands who you are and works with you and is not anxious to see what they can do to make life miserable for you.”
The current trend bucks the conventional wisdom that had long assumed national charters would become so dominant as to render state charters irrelevant.
“Every 10 or 20 years or so the momentum seems to go one way or the other,” says Wayne Abernathy, the executive vice president of financial institutions policy and regulatory affairs at the American Bankers Association. “It happens when you get either the national charter or the state charter becoming out of sync with the perceived business model.”
Abernathy sees a downside to a lopsided system.
“If you had only national charters for the big banks and only state charters for the small banks … over time I think you would see bank regulations and laws favoring the larger institutions,” he says.
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