Interstate Branching Under Fire

WASHINGTON -- As many as 24 Senators are joining a campaign to blunt the Bush administration's efforts to permit fullblown interstate branching by banks.

Leading the coalition of senators from midwestern and rural states is Sen. Wendell H. Ford, D-Ky., who aims to help the states retain substantial control over out-of-state banks operating within their borders.

A spokesman for Mr. Ford said the senator is working closely with the Kentucky Bankers Association on his plan.

Fourth of Senate, for Starters

"We have 12 or 13 states supporting our position now," said the spokesman. That would give Mr. Ford, a senior Democrat who chairs the Rules and Administration Committee, a starting base of nearly a quarter of the Senate.

Sen. Ford's campaign is noteworthy because, until now, interstate branching had been regarded as the one new bank power almost certain to be included any banking bill that emerges from this Congress. When the House Banking Committee considered the administration package earlier this year, opponents of interstate authority were defeated by wide margins on key votes.

But there are clear indications that opponents of interstate branching will wield more clout in the Senate. The Senate Banking Committee has already crafted a bill that is somewhat more restrictive that the House version. Among other things, it limits the percentage of the nation's banking assets that any one bank can hold.

Rural Interests Have Edge

Once the banking bill moves to the Senate floor, probably next month, opponents of interstate branching may have more clout than they will in the House. Because each state has two senators, regardless of size, rural interests enjoy disproportionate influence in that body.

Moreover, a number of state banking associations have begun campaigning against the interstate provisions, and several state legislatures, from New York to Texas, have gone on record expressing concerns.

"Our feeling is that the tide is shifting in our direction," said Jim Watt, president of the Conference of State Bank Supervisors. "There are real concerns out there. As the election approaches, people are beginning to worry about the numbers of job losses" from bank mergers.

Mr. Watt said that state legislators are worried not only about job losses that would come as banks merge and lay off employees, but from a reduction in funds available to small businesses as local banks are acquired by larger institutions.

Mr. Watt said that at least 18 state bank associations, most of them in the Midwest, are strongly opposed to interstate banking. "If you draw a line from Kentucky west, and another line from Oklahoma east, just about all the states in between are part of that group," he said.

Sen. Ford's aide said the senator has not yet settled on an approach to his interstate branching alternative, but he added that it would provide greater latitude to the states.

Language drafted by the Kentucky Bankers Association, which may provide the basis for Mr. Ford's amendment, would permit interstate acquisitions, but would set some restrictions. States would be able to "opt out" of interstate branching arrangements, and banks less than five years old would not be eligible for an interstate takeover.

Moreover, business generated at the surviving bank or branch would be fully taxable by the state in which the bank is located, and state laws regulating branches would remain in effect.

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.