State regulators are scrambling to keep their bank charters competitive as nationwide interstate branching approaches. On June 1, national banks will be able to open offices across the country and report to one regulator.
Last month, nearly all 50 state banking departments agreed to let the regulator in a state bank's home state lead its supervision. They also hammered out an agreement with federal regulators designed to streamline exams.
These nationwide pacts were assembled by the Conference of State Bank Supervisors, the professional organization of state regulators. Neil Milner, the group's president, recently discussed the future of state regulation with American Banker reporters.
Where do things stand with your efforts to prepare the states for interstate branching?
MILNER: Nearly all of the states have signed the multistate agreement and the state-federal agreement. Two states (Montana and Wyoming) have signed a letter of intent. They are preparing legislation that will give them the authority to get branching and thus enter into the agreements.
Explain how the agreements will work.
MILNER: They permit state bank managers to have a single source of contact for regulation. A state-chartered institution that wants to operate in a multistate environment can work solely with its home-state regulator for all state regulatory issues.
All the decisions will be made by the home state, with the clear exception of where a host state has enacted more extensive consumer laws. In those cases, the home state will still do that, but will have to coordinate and check with the host state.
But the bank will still only go through one regulator to make certain it is complying. They can make their branch applications for any place in the system through that one regulator.
The whole purpose is so the national charter does not immediately become the most attractive. We think it keeps the state bank charter competitive in an interstate environment. We want to make sure that people are aware that they can be in three states and not have to flip their charter in order to stay with a single regulator.
Who gets the fees banks pay for supervision?
MILNER: The home state, with the understanding that to the extent that they use host state examiners, there will be a contract fee on the outsourcing.
Are states concerned about losing money?
MILNER: Look at the options. If we had not found a way to keep the state charter attractive in an interstate environment, these banks would have just converted to national charters, and the states would have lost out anyway.
So it is a case of preserving what we have and hopefully making it so attractive that we'll get some conversions coming in because they'll realize that the ability to work with people on a local level is valuable enough to have a state charter.
But why should a bank stick with a state charter?
MILNER: The proximity and accessibility of the regulator; being able to go one on one with the supervisors on a very easy basis; the knowledge and understanding of local market area - we think are all factors that make the state charter more attractive.