Illinois has passed a law empowering state banks to sell virtually any product or service if at least one other state allows it.
This is the capstone of a series of laws that have been passed in the last few years, said Bruce J. Baker, senior vice president and general counsel at the Illinois Bankers Association. It truly places Illinois at the front of the pack.
Under the new law, Illinois' 580 state-chartered commercial and savings banks can begin new activities without notifying the state regulator. In fact, their only remaining restriction is federal: If the activity is not permissible for national banks, the Illinois bank still must seek approval from the Federal Deposit Insurance Corp.
Proponents said the law, which was signed July 29 by Gov. George H. Ryan, makes Illinois' banking charter one of the country's most enviable. Having a relatively appealing charter is considered crucial in an era of consolidation, when merging institutions need to choose their headquarters. Attracting and keeping new banks can mean more jobs and capital for the host state.
I think it's one of the more expansive charters, said Scott D. Clark, assistant commissioner of Illinois banks and real estate.
Illinois' new wild-card law is not absolute. The state banking agency retained the right to prohibit a bank, or all state institutions, from conducting an activity believed to be unsafe.
Moreover, the law does not apply to insurance, branching, or real estate powers, because of separate agreements on those issues.
We just passed insurance-powers legislation about two years ago, and that was through a process of negotiation with the insurance industry, Mr. Baker said. We didn't want to go into that and expose what was a good agreement...to a whole new set of possibilities.
Illinois already has a law allowing state banks to match national bank powers. And last year the state gave state-chartered banks the same rights as any national or state thrift.
Most states have wild-card laws; some of them only mimic national banking laws, though others are more expansive. Some laws require a bank to get its regulator's permission before commencing a new activity.
It's not an innovative-type statute, said an employee at one bank trade group. It's wonderful that states pass them, because then they don't fall behind if somebody comes up with something interesting. But wild-card statutes tend to be more of a backstop than progressive.
Mr. Clark said Illinois has seen an explosion in recent years in applications to start new banks. Nineteen are pending, and Mr. Clark said he will meet with another group of interested investors today.
So far the state and the bankers have only identified one new power that Illinois banks acquired under the new law: the right to underwrite municipal bonds. But Mr. Clark said his staff is searching for more.
The wild-card law contained some provisions that could appeal to national banks as well as state banks. One such clause says banks have a right to make a profit on fees they charge.
We hope it will eliminate the prospect that a bank could be attacked in the courts for establishing transaction fees, Mr. Baker said. It's the first law in the country that goes out and says this.
Meanwhile, other states continue to follow suit. Mississippi recently issued an expansive wild-card rule that takes effect Aug. 19.