Nebraska bankers see more than a ghost of a chance of eliminating a loophole in the state's restrictions on de novo branching.

Both of Nebraska's main banking trade groups are supporting legislation to halt the creation of "phantom S&Ls" - thrifts that banks establish in order to turn them into bank branches.

The end run around Nebraska's branching laws "appears to be beyond any legislative intent or desire," said Bob Hallstrom, general counsel for the Nebraska Bankers Association.

De novo branching in Nebraska is restricted - outside the Omaha and Lincoln areas - to a bank's own community. Further, any acquired bank's charter must be 18 months old before it can become a branch.

However, legislation on thrift acquisitions last year was ambiguous about the time frame. Subsequently, some banks chartered their own thrifts momentarily before converting it.

Kurt Yost, executive director of the Nebraska Independent Bankers Association, said he suggested last year a moratorium on such applications while the state Legislature considered the issue.

Nonetheless, the state's banking department so far has approved six of the 21 ensuing applications. Two were denied, one was withdrawn, and 12 are pending.

The bill to close the loophole, known as the S&L Cross Industry Merger/Acquisition bill, would reinstate the 18-month charter requirement for thrifts. Two banks have executed "reverse mergers," merging themselves into newly created banks, and the bill would disallow that as well.

An amendment would allow a bank to use a "phantom" charter to acquire an existing thrift branch that otherwise might be closed.

Sources said there is no major opposition to the bill and it is expected to be passed this year if time permits in the short legislative session.

Although $55 million-asset Bancook Corp., Cook, has used the loophole to create branches at two of its three Nebraska banks, vice president Charles Bevard said the company has no position on the legislation.

"I am very sympathetic with both sides of the issue," Mr. Bevard said. "But when the legal opportunity is there, you take advantage of it. If it's not there, you don't. We tried to come to dinner while there was still plenty of meat on the table."

Mr. Yost agreed that rural community banks are seeking ways to expand and that in-state de novo branching may come up again in the future.

"We need to address branch banking in a heads-up fashion, not through some unintended loophole in the statute," he said. "If enough community bankers want branch banking, that's a subject we need to discuss and bring up to the Legislature."

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