The Association of Bank Holding Companies has become the first national banking trade association to come out in favor of interstate banking.
In a speech in Williamsburg recently, Frederick Deane Jr., chairman of the association and chairman of the Bank of Virginia Co., told the group that the time has come for a "new banking system."
Interstate banking "will facilitate a more orderly consolidation and restructuring of the finance services industry," he said.
Deane cited a number of economic, regulatory, competitive and techonological pressures that are making interstate banking necessary for the survival of banking institutions.
The McFadden Act of 1927 and the Bank Holding Company Act 1958 prohibit commercial banks from operating deposting-taking facilities in states other than their home state.
"The result is that for the overwhelming majority of banking organizations, the liability side of the banking business is restricted to one state," Deane told the association. "To be strong, interstate banking operations ultimately must have a deposit base comparable to their lending operations."
Deane said that many banks are finding ways around the statutes by using certificates of deposit, credit cards and other mechanisms to set up deposit bases in other states. Pressure is also being felt from other financial institutions such as credit unions, finance companies and foreign banks that enjoy greater freedom to operate on an interstate basis, Deane said.
Deane painted a gloomy picture of the effects of inflation on banks and savings and loans. One result has been an increase in the number of savings and loan and savings bank mergers.
"Whereas in the past, consolidations and mergers were restricted within states and only among like institutions, in the future state lines may have to be crossed and consolidations approved between banks and thrifts due to the nature and magnitude of the problem," the chairman said.