State regulators are successfully wooing record numbers of national banks to change their charters with aggressive appeals touting cheaper exam costs and more flexible standards.
New Mexico, Colorado, Michigan, Texas, Arkansas, Iowa, Wisconsin, and Kansas have all prepared documents promoting the advantages of their charters.
Comptroller of the Currency Eugene A. Ludwig blamed aggressive state campaigns for the recent wave of charter switches: 118 banks have left the OCC in the past two years. That's a fraction of the 3,809 national banks, but it is nearly three times as many charter flips as in the previous two years.
In an interview, Mr. Ludwig charged that the practice pits regulator-against-regulator in a contest for who can offer more lenient rules.
"The notion of a state going out and soliciting someone to change a charter is just terrible public policy," he said. "It hurts taxpayers in the sense that it puts the system more at risk and puts the deposit insurance fund more at risk."
Mr. Ludwig acknowledges that a national charter is more expensive to hold, but said the extra cost is worth it because the agency's specialists in derivatives and other new areas that can help banks keep out of trouble. He also said the costs will come down soon.
"It is unfortunate that the OCC continues to have the mentality that it should monopolize banking regulation in this country," said Colorado banking commissioner Barbara M.A. Walker.
The Conference of State Bank Supervisors, the professional organization representing state regulators, said Mr. Ludwig is wrong about the state's motives.
"To imply that we are Willing to let these guys get away with something is just outrageous," said Ellen C. Lamb, CSBS's assistant vice president for member services. "It doesn't do the states any good at all to have the banks falling."
Ms. Lamb said if state regulators were too lenient, the Federal Deposit Insurance Corp. would not insure them.
Six or seven states are now "actively marketing" their banking charters, Ms, Lamb said. Most other states welcome banks choosing state supervision but "feel that it is not becoming" to solicit banks, she said.
The states are stressing that regulation is cheaper for state chartered banks
and that supervisors are more accessible.
Several states advertise that top regulators will promptly review complaints banks have about their exams or will modify the scope of the exams. They assert that state banks can influence the state lawmakers writing, banking legislation, with the help of their state supervisors.
In its promotional material, Colorado notes:
"Unlike the OCC's multitiered procedure imposed on national banks to request a review of a bank examiner's conclusions, state banks need only contact the Division for an immediate review."
Five percent of Colorado's national banks have switched to state charters in the last two years.
"I don't think it is lighter regulation; I think it is more common-sense regulation," Ms. Walker said.
The pamphlet also tells prospective state banks that the banking division is "flexible in examination scheduling, techniques and scope." Asked how her division is flexible on the "scope" of an exam, Ms. Walker said, "That could actually be an error I do not believe in practice we have ever sought input from the banks on scope."
Michigan's last banking commissioner produced a video touting the state's charter. but the current head of the state Financial Institutions bureau. Patrick M. McQueen, said he shelved the video after taking over last year.
"We are not in the business of selling the charter." Mr. McQueen said. "We don't want to have a bank shopping for charters ."
But Mr. Ludwig said in nearly all of the cases he'd looked into. banks changed
to state charters alter complaining that the OCC was too tough.
"They don't come out of the blue where somebody is going along and all of a sudden they just decide they are paying too much money," Mr. Ludwig said. The growing competition between regulators, "sets up a dynamic for people every time they feel they have been criticized, they flip charters."
By far the biggest national bank to switch charters is Continental Illinois, which announced in June its plans to leave the OCC. BankAmerica Corp. is buying Continental but plans to run the bank as a statechartered subsidiary
The number of banks leaving OCC is increasing. In 1992, 50 OCC banks changed charters, and last year 68 opted for state supervision.
Ms. Walker is not the only one disappointed that the OCC is publicly complaining about the aggressiveness of state banking regulators. Several state supervisors and bankers repeated tales of Mr. Ludwig, telephoning national bankers who were contemplating a charter change and urging them to stay with his agency.
OCC spokeswoman Leonora S. Cross said Mr. Ludwig has made "a handful" of phone calls to bankers he heard were switching charters. "He just wants to make sure that they hear both sides of the story," she said.
Besides, state supervisors "are actively soliciting national banks to convert to a state charter we are not actively soliciting state banks to convert," Ms. Cross said. "It is the difference between stirring your own pot and stirring somebody else's."
However, an OCC official whose identity could not be learned sent a letter last November to a national bank after hearing that the bank had decided to switch to a state charter.
"There is no question that it is less costly in terms of assessments paid to be a state chartered bank," the letter reads. "It is also less costly to drive around in a Yugo' automobile rather than a Cadillac. And there is no question that the difference between the state and the OCC is that wide."
Iowa has been one of the most successful states in luring national banks to its fold 15% of the state's national banks have switched to state supervision in the past two years.
Iowa Superintendent of Banking Richard H. Buenneke said in July 1992 his department sent a brief letter to all the state's national banks discussing state fees and examination schedules. "It was not long after that that we had about 12 or 13 conversions," he said.
"We have never told anybody that we are going to be easier on you if you are a state bank," Mr. Buenneke said. In fact, the OCC's lending limits to one customer are now more liberal than Iowa's.
But Mr. Buenneke said he has worked to change that, since many national banks in Iowa make loans to farmers larger than the current limit. The Iowa banking code is soon to be revised and Mr. Buenneke said, "that will
probably encourage some
bankers to convert."