TCF Bank Saving, the largest thrift in Mennesota, has become the first institution to take advantage of the Office of Trift Supervision's controversial rule allowing interstate branching.

The principal subsidiary of TCF Financial Corp., Minneapolis, gained OTS approval last week to branch into Iowa and Wisconsin. TCF opened branches Monday in suburbs of Des Moines and Milwaukee.

Privilege for Healthy Thrifts

The OTS rule, which took effect May 11, allows well-capitalized, federally chartered thrifts to open branches outside their home states.

Arguing that Congress, not a regular, should set the rules, the Independent Bankers Association of America joined with the Conference of State Bank Supervisors in an unsuccessful lawsuit to block the initiative.

"We think that the states should have right to choose their own banking system," said Robert Hawkins, president of the IBAA and chairman of Southern Commercial Bank, St. Louis.

Congress Moves to Block Rule

But Congress may overturn the OTS rule and thwart other interstate branching by thrifts. The Senate has voted for a 15-month moratorium on the rule, and the House may take up the measure when it reconvenes July 21.

"If Congress bans interstate branching we could have a problem," said a TCF Bank spokeswoman. The thrift would probably ask to be "grandfathered in" under the current rule.

Alternatively, TCF could obtain separate lowa and Wisconsin charters.

The OTS branching rule was announced with great fanfare at a White House meeting in April when the Bush administration was trumpeting its effort to ease regulatory burdens on banks and thrifts. Before the change, thrifts could branch interstate only by acquiring and converting failed institutions.

Banks Left Out

Commercial bankers, meanwhile, complain that they are unable to branch freely using a single charter.

Branching is less costly than establishing separately chartered affiliates, and it can add geographical diversity to a financial institution's portfolio, said Donald K. Crowley, a consultant at Keefe, Bruyette & Woods Inc. in San Francisco.

TCF has about $4 billion in assets, 58 branches in Minnesota and 20 in Illinois.

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