Michigan's financial institutions commissioner this week made good on a threat to sue the Office of the Comptroller of the Currency over its aggressive use of an interstate banking loophole.
Patrick M. McQueen accused Comptroller Eugene A. Ludwig of violating state and federal laws by allowing Society Bank, Michigan, to branch into Indiana, according to a lawsuit filed Monday in federal district court.
Another state bank commissioner, Catherine A. Ghiglieri of Texas, sued the OCC in September after it allowed an Arkansas bank to move its headquarters 30 miles across the state line into Texas, which is the only state so far to opt out of interstate branching. Eleven other state banking commissioners have filed supporting briefs in the case.
The Michigan case focuses on the comptroller's Jan. 5 decision to permit Ann Arbor-based Society Bank, a state bank owned by Cleveland-based KeyCorp, to convert to a national charter, move its headquarters 75 miles to Bronson, Mich., and then move less than 30 miles to Angola, Ind.
Society then merged with Society National Bank, South Bend, Ind. By June, KeyCorp intends to combine that bank with its Cleveland bank, converting the Michigan and Indiana locations into branches of the Ohio bank a year before nationwide interstate branching takes effect in June 1997.
"Right now, a Michigan bank can't branch into Indiana or vice versa," said Mr. McQueen, adding that the OCC decision "puts state banks at a competitive disadvantage."
The Comptroller's Office, however, claims its decisions are legal. "It's been a long-standing policy and practice at the OCC that in the case of converting banks that they have the same right as the organizers of a new bank to designate any location for their main office," said OCC spokesman Ed Alwood.
Michigan last year agreed to "opt in" to interstate branching early, but the law requires reciprocity with other states. Indiana's law allowing banks in other states to branch into the Hoosier State has been approved by the state Legislature but has not been signed by the governor yet. Ohio has not addressed the issue yet.
Mr. McQueen also argues that the OCC does not have the authority to approve a headquarters move of more than 30 miles after a bank switches from a state to a national charter.
"I see it as a much bigger issue," he said. "The way the comptroller has structured this, it's conceivable a Michigan bank could go into Texas and continue to branch in Michigan."
Ellen Lamb, a spokeswoman for the Conference of State Bank Supervisors, agreed. "The precedent of the Michigan case is it is more than a 30-mile loophole - it is potentially a 3,000-mile loophole," Ms. Lamb said.
But Mr. Ed Alwood said moving a headquarters out-of-state after a charter switch "does not necessarily follow from this example."
