WASHINGTON — States are slowly lifting the restrictions they have imposed on interstate banking and branching.

In recent years 16 states, including Oklahoma and Hawaii, have eased curbs on banks’ crossing their borders, such as requiring the purchase of an existing bank. The Utah Legislature has passed a similar bill that the governor is expected to sign this week, and bills are pending in New Hampshire and Tennessee.

“States are beginning to look at the restrictions and beginning to rethink those restrictions,” said Montrice Yakimov, senior vice president and director of regulatory affairs at the Conference of State Bank Supervisors. “The fact that bills are being introduced is testimony that states are looking at it.”

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 set the stage for nationwide banking. However, the law gave states until mid-1997 to impose conditions on entry. Most states did.

Most required entrants to buy a bank that had operated in the state for at least five years. Most also required reciprocal treatment for their banks by the home state of the acquiring bank. For instance, a bank based in Virginia could enter North Carolina provided North Carolina banks could enter Virginia under the same rules.

Only two states, Texas and Montana, barred entry altogether, but Texas opened its borders in September 1999, and Montana’s will open in October.

When the federal law was enacted in 1994, many community bankers feared out-of-state banks would come in, win away customers, and drive down their businesses’ values. However, smaller banks, particularly those in communities near state borders, are being hamstrung by conditions the states imposed.

Randy D. Dennis, president of DD&F Consulting Group in Little Rock, Ark., said interest in repealing these conditions has grown in the last six to nine months as more banks want to sell or buy branches in other states. “You’re seeing a lot of banks shutting down branches, so you’re having interest across state lines,” he said. “What’s happening is, bankers are just beginning to realize that they can’t do it.”

PhilipK. Smith, managing director of the Memphis law firm of Gerrish & McCreary, said that as “barriers break down, the changes in the law help the community banks.” States will continue to ease their restrictions until banks are allowed to buy or start banks in any state without restriction, he predicted. “The next step will be bordering states with no reciprocity, and at some point national” interstate banking “with no reciprocity.”

The issue of reciprocity prevented David Holland, president of Citizens Bank in Hickman, Ky., from branching into Tennessee. Because Kentucky still requires entrants to buy an existing bank, Tennessee would not let Citizens cross the border to expand its operations.

Mr. Holland said his only alternative was to establish a bank in Tennessee with capital raised from investors in that state and to operate it for five years before incorporating it as a branch — an expensive, time-consuming process.

So until Kentucky changes its law, Mr. Holland said, branching into the state is not feasible. “If they won’t, it’s just a dead issue as far as we’re concerned,” he said.

After several years of debate, the Hawaii Legislature passed a law, which took effect Jan. 1, that lets banks enter the state by opening a new bank or branch even if the bank’s home state does not allow de novo entry.

“Our position was, we believe it should be open,” said Lynne Himeda, deputy commissioner of the Hawaii Division of Financial Institutions.

In New Hampshire, pending legislation would remove the five-year restriction and let entrants start new banks. However, if an existing New Hampshire bank is bought, the legislation would require conditions in the acquirer’s home state to be “no more restrictive” than New Hampshire’s laws.

Tennessee’s bill mirrors New Hampshire’s, and the Utah legislation would allow de novo branching as long as the bank’s home state offers reciprocal treatment.

States are not alone in reconsidering their responses to the 1994 federal law. The House Financial Services Committee’s agenda includes a plan to review Riegle-Neal to see “whether the widespread use of the Internet and the evolution of the financial services industry since enactment of this law have made its provisions obsolete.”

Committee spokeswoman Peggy Peterson said she could not elaborate.

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