House Adopts Compromise On Interstate Branching

States Would Retain the Right to Bar Entry

WASHINGTON -- The House of Representatives turned back efforts Monday to weaken an interstate branching proposal but accepted an administration-backed compromise that would give states the right to bar entry to banks based outside their borders.

The compromise was a considerable retreat from the Bush administration's earlier desire for unfettered interstate branching. It was adopted on a 366-to-4 vote. The House was expected to vote later in the day on the full banking reform bill.

The state-option measure was far more moderate than a proposal that would have let banks branch only in states that explicitly authorized branching. This proposal failed on a vote of 250 to 142.

"The issue is competition," said Rep. Peter Hoagland, D-Neb. "Is it the role of the U.S. Congress to protect small businesses from competition?"

Others argued that unrestricted interstate branching would let big banks draw deposits out of small communities for lending elsewhere. "Many communities depend on agriculture, and we need to keep capital in those small communities," said Rep. Jim Slattery, D-Kan.

As the House moved toward a final vote on the entire bill, the American Bankers Association and the Bush administration were working to kill the House version, but the Democratic leadership was working just as hard to pass it.

Aiming for Conference?

Some industry sources said the administration strategy was to defeat the House measure and lay the groundwork for a House-Senate conference in which the bill ultimately would be written.

The administration would then presumably hope to jettison Republican-opposed restrictions on bank securities and insurance powers, while retaining provisions the GOP favors, such as interstate branching.

"It has happened time and again in the past," said Kenneth Guenther, executive vice president of the Independent Bankers Association of America. "They pass a narrow House bill and a broad Senate bill and write the final bill in conference."

But some lawmakers said there may be too little time left this year for a conference committee to write a broad bill. "We could end up just recapitalizing the Bank Insurance Fund and requiring early intervention" to close failing banks, Rep. Slattery said.

Support for Branching Plan

Meanwhile, the Senate was preparing to take up its reform bill Wednesday. Although a number of senators have placed "holds" on the bill, signaling their willingness to filibuster, Majority Leader George Mitchell, D-Maine, was said to be ready to offer a cloture motion to limit debate.

The wide margin in the House in favor of the interstate branching compromise indicated that the measure would get strong consideration even if the omnibus bill loses steam and Congress turns to the so-called "narrow" approach.

The provision would let banks begin opening branches in other states three years after the bill is signed into law, except in states that specifically act to bar such branching.

States could opt to permit interstate branching earlier. The amendment, sponsored by Rep. Bruce Vento, D-Minn., and Rep. Doug Bereuter, R-Neb., would also let states set the terms for branching.

For example, a state could decide that banks would be able to enter only through acquisition - a condition that many bankers believe protects the value of their franchises.

Bank holding companies that own banks in other states could convert those banks to branches 18 months after enactment. The measure also establishes concentration limits that would prohibit any one bank from holding more than 10% of the nation's insured deposits, or 30% of the deposits in any one state.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.