North Carolina's recent decision to open itself to nationwide interstate banking means that one of the state's major banks may soon do a deal outside the region.
The North Carolina legislature last week voted to advance the effective date of the state's interstate banking law by two years to July 1. North Carolina had voted last year to permit reciprocal nationwide interstate banking by July 1, 1996.
As a result, banks in North Carolina now can acquire institutions in about 35 other states, and vice versa. North Carolina's largest banks - NationsBank Corp. and First Union Corp. in particular now can consider expanding into other regions. "The ability of a bank like NationsBank or First Union to do an acquisition anywhere they'd like to is certainly greater," said John Douglas, a banking attorney with Alston & Bird in Atlanta.
Exiting the Southeast Compact
The two Charlotte-based behemoths previously had been restricted by the "Southeast Compact," a series of reciprocal interstate banking agreements reached among 11 Southeastern states in the mid-1980s.
North Carolina's decision last week to immediately exit the Compact caps a year-long lobbying effort by NationsBank and First Union that encouraged four other states to open their borders: Virginia; Georgia, Florida and South Carolina.
But it's still not all clear sailing for NationsBank or' First Union should they wish to expand into, for example, California or Ohio. There are complications having to do with timing and the Southeast Compact's "80-20 rule."
National interstate banking is not effective in Georgia and Florida until the summer of 1995, and in South Carolina until July 1996. As a result, requirements are still in effect in all three states - as well as Maryland, which has not yet taken up the interstate issue - that banks headquartered in the Southeast maintain 80% of their deposits within the region.
Violating the 80-20 rule could require a bank attempting to expand into another region to divest its subsidiaries in one or more Southeastern states.
"Obviously, it's a major constraint," said Peter Davis, manager of state and local governmental relations for NationsBank in Atlanta.
Mr. Davis said NationsBank always has been content to wait until 1996 to escape the restrictions of the Southeast Compact, although he-noted that a national interstate banking bill now being considered by Congress would make the Compact irrelevant by next summer.
Until then, any acquisition by NationsBank outside the Southeast "couldn't be a very large bank, and if it was a very large bank, it couldn't happen until 1996 or later," Mr. Davis said.
But Mr. Douglas is not so sure. The former general counsel of the Federal Deposit Insurance Corp. pointed out that the divestiture statutes in the various states involve one- or two-year periods, which affords ample time to advance trigger dates.
Also, since Florida, Georgia, and South Carolina are all scheduled to leave the compact within two years at the latest. an acquisition could be constructed so that the divestiture requirements lapse before taking effect, according to Mr. Douglas.
As the largest bank in the Southeast, with $165 billion in assets, NationsBank inevitably will attract the most speculative attention when analysts and investors try to anticipate future acquisitions. Indeed, it was Nationsbank lobbyists who spearheaded the initial effort last year to open North Carolina's borders and this year's successful campaign to do the same in Virginia, Georgia, Florida, and South Carolina.
But it was First Union, with $72 billion in assets, that led this year's lobbying effort to advance the trigger date in North Carolina. A spokeswoman for the bank said First Union. simply felt it appropriate to get North Carolina's trigger date "more in line" with other Southeastern states.
When asked if the bank had any plans to expand outside the region, she said, "we've always said we would go where it makes financial sense,"