Thrift Regulator Stifles Bank Bid to Circumvent Okla. Branching Rules

An Oklahoma bank's unorthodox attempt at de novo branching - bankers there dubbed it "surrogate branching" - was derailed after two weeks of intense industry criticism.

Stillwater National Bank and Trust wanted to expand its branch network in Oklahoma and offered to pay a tiny de novo thrift to open 12 branches. Stillwater would buy the branches after they were open for a single day.

The deal was an attempt to circumvent the state's restrictive branching laws.

"We want to run a growth company," said Stillwater chief executive Robert J. McCormick. "Under Oklahoma's restrictions, we can't do that. We believe this transaction is perfectly legal under Oklahoma law."

The move raised a hue and cry from the state banking associations. Even the Oklahoma Bankers Association, traditionally an ally of branching in the state, sent a formal objection to the Office of Thrift Supervision and the Office of the Comptroller of the Currency and said it was a "contrary to the spirit and intent of Oklahoma's branching laws."

Steven M. Schooley, chief executive of Federal BankCentre, a de novo thrift near Tulsa that was to open the branches, was told verbally by the Office of Thrift Supervision on Friday that the agency would not approve the application. The agency gave the companies the option of withdrawing the request.

"As of this week, there's almost no chance of success," Mr. Schooley said Friday. He added that sometime this week both companies will decide whether to withdraw the application.

Oklahoma has a patchwork of restrictions on bank branching in the state. A bank can branch anywhere in the state only through purchase of an entire institution. Also, de novo branching is not allowed unless it's in the same town as the head office or is within 25 miles of the head office in a town where no other bank is headquartered.

But federal thrifts like Federal BankCentre have no such restrictions. Thus the thrift, for a fee, could act as a surrogate giving birth to Stillwater National's would-be family of branches.

The deal would have increased the bank's branch network to 17 from five, and would have given the bank a sizeable presence in the Oklahoma City and Tulsa markets.

Terms of the deal were not disclosed.

Federal BankCentre was started late last year by a health care company. It has only about $9 million in assets and one office. Mr. Schooley said the only benefit for the thrift would have been the fee for the deal.

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