A federal appeals court in Chicago ruled Wednesday that the Office of the Comptroller of the Currency exceeded its authority in 1996 by allowing KeyCorp subsidiaries in neighboring states to merge.
The U.S. Court of Appeals for the Sixth Circuit essentially invalidated the so-called 30-mile rule, a loophole used in the early 1990s to circumvent a ban on interstate branching.
The ruling voids the OCC's approval of Society Bank of Michigan's conversion to a national charter and its merger with Society National Bank of South Bend, Ind. Both banks were units of KeyCorp of Cleveland, and are now part of KeyBank.
The decision is expected to have little practical impact, because Congress gave most banks permission to branch across states lines as of June 1997.
OCC Chief Counsel Julie L. Williams characterized the ruling as "sort of a Rip Van Winkle decision."
"The key issue is moot," she said.
Michigan banking commissioner Patrick M. McQueen, who filed the suit, said he does not expect the merger to be undone because of the ruling. But he touted the decision as sending a message to the OCC about overstepping its authority.
"We've all got rules to live by, and this was one of them," Mr. McQueen said. "What the OCC did was allow national banks to do something state banks couldn't do."
A KeyCorp spokeswoman declined to comment.
The government said it has not decided whether it will appeal to the Supreme Court, ask the appeals court to reconsider, or let the ruling stand. Last year the Supreme Court let stand a lower court ruling upholding NationsBank Corp.'s use of the 30-mile rule to merge its Texas and New Mexico operations.