WASHINGTON - As more banks use a century-old law to cross state lines, a war of words has broken out between state and federal regulators.

With the explicit blessing of the Office of the Comptroller of the Currency, 13 banks have branched interstate in the past year by using the a law known as the 30-mile rule. And scores of others have called the agency to ask about the law.

The statute, adopted in 1886, allows national banks to move their main offices up to 30 miles - even across state lines - and operate the original bank location as a branch.

State regulators, however, have objected strenuously to the recent use of the rule. In approving the moves, they charge, Comptroller Eugene Ludwig has violated the rights of states to control branching over state lines.

"I think it is totally contrary to what this country was built on," says Frank Dunnick, bank commissioner of Kansas.

For its part, the federal agency has said its rules preempt state law, and has even argued that some state restrictions violate the Constitution.

As the accompanying table shows, New Jersey's First Fidelity Bancorp. has been one of the most active users of the 30-mile rule.

"It is mostly attractive because it allows our customers to bank across state lines," spokesman Paul J. Levine said. "In our case, we have now created a single bank stretching from the Hudson Valley in New York across Pennsylvania and New Jersey and now into Maryland."

NationsBank Corp. has also been a big user of the rule, and Boatmen's Bancshares has two proposals pending to expand under the rule.

The controversy heated up in February when the OCC, in a landmark decision, allowed Bank Midwest of Kansas to move its main office from Lenexa, Kan., to Kansas City, Mo., and merge with its sister institution there.

The decision attracted attention because the OCC approved the deal even after the Kansas governor wrote to object. The OCC said Kansas' law prohibiting out-of-state banks from operating Kansas branches violates a clause of the Constitution by burdening interstate commerce.

Mr. Dunnick said Comptroller Eugene A. Ludwig is "just absolutely trying to nationalize our national banking system" by giving competitive advantages to OCC-regulated banks.

The Comptroller's interpretation of the 30-mile rule has drawn fiery rhetoric from Washington-based trade groups and state regulators.

The Conference of State Banking Supervisors says the OCC is breaking with its past practice of deferring to their views when considering deals.

Ellen Lamb, a spokeswoman for the trade group, said that when NationsBank first applied to move its Maryland headquarters to Virginia in December 1994, the Comptroller's office requested that the bank withdraw the applications after the Maryland banking commissioner objected.

NationsBank withdrew its application and successfully reapplied later. But the OCC, the bank, and the Maryland commissioner all say the OCC did not ask Nations to withdraw its request. They say the bank wanted to give deference to the Maryland regulator and chose to temporarily withdraw its application.

The Independent Bankers Association of America maintains that the 30- mile rule benefits big banks at the expense of the community banks IBAA represents.

"Gene Ludwig is running roughshod over key states' rights," said Kenneth Guenther, the trade group's executive vice president. "The beneficiaries are the largest banks of this country, to the detriment of the smallest banks."

Not all users of the law are huge, however. About half the banks with plans approved by the OCC over the past year have had assets of less than $1 billion.

Indeed, the OCC said small banks have inundated the agency with phone calls about how to use the 30-mile rule.

"An incredible number of inquiries have come in from small community banks," said Senior Deputy Comptroller Frank Maguire. So far, the agency has received about 75 inquiries from small banks, he said.

State regulators, meanwhile, worry that debate in statehouses around the country over the interstate branching law Congress passed last year will be distorted because the OCC is allowing national banks to branch across state lines.

Texas Banking Commissioner Catherine Ghiglieri asked the OCC last month to reconsider its decision allowing Commercial National Bank to move its main office from Texarkana, Ark., to Texarkana, Tex.

"They have totally ignored state law, which up until now has been what controls branching," she said. The approval "violates the spirit" of the federal interstate law, which allows states to "opt out" of its branching provisions before they go into effect in the summer of 1997.

The Texarkana decision was particularly frustrating because "we are so close to having an opt-out law in Texas," she said. The Texas House of Representatives voted earlier this month to opt out of the interstate branching law, and the Senate is now reviewing the issue.

"That sends a clear message" that Texas does not want out-of-state banks to have branches there, Ms. Ghiglieri noted, a message the OCC ignored with its approval.

The Conference of State Bank Supervisors agrees that the federal law firmly supports states' rights.

"With the elaborate opt-in, opt-out deadlines and timetable, it is clear that Congress wanted to allow states to set their own banking structure," said James B. Watt, president of the trade group.

Though they dislike the OCC's use of the 30-mile rule, opponents concede that they don't have many ways to stop it.

"The legislative history indicates that that authority does exist," the IBAA's Mr. Guenther admits. That language "essentially says the Comptroller can go full speed ahead on exploiting this loophole."

When the Kansas attorney general sided with the Comptroller's office on the Bank Midwest matter, "that didn't help our cause any," admitted Mr. Dunnick, the Kansas regulator.

"If it were illegal and the courts said so, that would be one thing," said Maryland Banking Commissioner Margie H. Muller.

She has not sued the OCC over the NationsBank approval because it involved branches grandfathered under the McFadden Act. But if another bank tries the same approach, Ms. Muller said she would ask the state's attorney general for an opinion on the move.

Ms. Muller says she mainly wants a level playing field for state- chartered banks.

"If I were in the shoes of the comptroller, I would want to allow my banks to do these things," she says.

So why did she at first protest Nations' move? "My job is to uphold the state law, and the state law says this is illegal," she says.

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