State regulators agreed Monday to share supervision of banks branching within 10 Midwestern states.
The compact involving Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio, Wisconsin, Missouri, and the Dakotas follows similar deals struck by regulators in the Western and Middle Atlantic states. Southeastern state banking departments are expected to follow suit soon.
The states are moving to keep their charters competitive. Next summer a 1994 federal law kicks in that will wipe out barriers to branching across state lines. At that time, national banks will be able to branch nearly anywhere and operate under one set of regulations.
Unless the states act now, their banks could be subject to varying rules and examined by numerous authorities.
Under the pact announced Monday, all of a bank's branches will be supervised by the home-state banking department. A bank's home state is determined by the location of its headquarters.
"This will give state-chartered banks the comfort of understanding what their regulatory environment is going to be like," said Patrick M. McQueen, Michigan's commissioner of financial institutions. "It will assure them that their home-state banking department is going to be their regulator no matter where they branch."
The Conference of State Bank Supervisors, a professional organization for state regulators, has been the driving force behind these regional pacts. The group drafted a sample in April and has been encouraging states to sign on.
The final goal, according to Earl Manning, chairman of the supervisors conference, is to establish a seamless nationwide agreement that avoids a confusing regulatory framework for state banks.
"It's vital to create a nonporous interstate regulatory environment for state-chartered banks," said Mr. Manning, who is also the Missouri commissioner of finance. "It is definitely a front-burner issue for us."
Under the pacts, certain local laws will still apply to out-of-state branches. These offices must comply with their host state's branching, fair-lending, Community Reinvestment Act, and consumer protection laws. However, banks that operate in a number of states will comply with their home-states' rules on chartering, capital requirements, common trust funds, and bank subsidiary structure.
Though the agreements clearly outline to whom state-chartered banks must report, they also encourage cooperation among states, said Hal Lingerfelt, North Carolina's commissioner of banks.
"We are working together very well to swap information," he said. "While we handle applications for our branches in Virginia, we welcome the Virginia department's comments on them."
Some Midwestern state regulators didn't wait around for the final signature to take advantage of provisions in Monday's agreement.
Charles W. Phillips, director of the Indiana Department of Financial Institutions, said that the application process for Hoosier State banks seeking to open branches in other states had improved dramatically while the agreement was pending.
Indiana regulators recently approved the application of First Source Bank, South Bend, to open two branches in Michigan. Instead of needing approval from both states, First Source needed only Indiana's.