Virginia appears to be the first state in the nation to allow entire boards of directors of its state banks to reside in other states.
"We were the first state in the country to opt in to Riegle-Neal, so this was the next step in implementing that strategy - of hopefully making Virginia a place where banks would want to domicile," said Michael L. Toalson, senior vice president of government relations for the Virginia Bankers Association.
A bill eliminating director residency requirements was unanimously passed by the Virginia General Assembly at the end of February and signed by the governor. It is to become law July 1.
Virginia implemented full interstate branching beginning last July, even allowing out-of-state acquisition of branches and de novo branching on a reciprocal basis.
The latest move would likely make Virginia still more appealing to out- of-state regionals looking to relocate their headquarters. That's because it would not require them to reconfigure their boards to include Virginia residents, Mr. Toalson said.
And, by allowing Virginia state banks to have as many out-of-state directors as they want, the law also discourages small banks near state lines from moving their main offices out of the state, he said.
Banks on Virginia's borders with Tennessee and North Carolina, in towns such as Bristol, Danville, and Abingdon, serve some out-of-state customers and would naturally like to have the option of plucking directors from across the border as well, some observers said.
"With interstate branching coming, and if down the road we decide to branch into Tennessee, we'd like to be able to have a director from there," said Samuel L. Neese, chief executive of $170 million-asset Highlands Union Bank of Abingdon, which is about eight miles from the Tennessee line.
Liberalizing the restrictions on Virginia's state bank boards also makes sense given the increasing difficulty of finding bank directors today, some said. Liability concerns and the time requirements of the job have scared away many would-be directors, observers said. So it makes sense to broaden the potential pool of candidates.
"It comes down to getting the best that you can, wherever they live, rather than foolishly cutting off someone who could help your business," said Mathew H. Street, associate general counsel at the American Bankers Association.
The old law required that a simple majority of directors of state bank boards reside within the state.
The Riegle-Neal Interstate Branching and Banking Act changed the requirements for national banks - from a two-thirds minimum to just 50% of the board having to live within 100 miles of the bank.
"We chose to take it a step further," said Mr. Toalson of the Virginia Bankers Association. "We are in a different banking environment than we were a decade ago, and this seemed to be a logical move."
Most of the residency requirement laws still on the books around the country likely trace their roots to the days of "wildcat banking," suggested George Freibert, president of Professional Bank Services Inc. in Louisville, Ky. The term refers to the practice in the gold rush days when banks moved into prospecting towns, accepted gold deposits from miners in exchange for banknotes, and then suddenly relocated, often to places that only "wildcats" could reach. The hapless miners would be left with worthless bank notes.