Last Friday was one of those rare occasions when New York's giant Citicorp and the Maryland banking industry appeared to be in general agreement on an issue critical to Maryland's economy and banking in the state.
An apparent willingness by Citicorp and state banking leaders to settle for a compromise on interstate banking -- perhaps the most emotional issue confronting the industry today -- suggests that both of these antagonists recognize the handwriting on the wall.
It's no longer a question of when interstate banking will become a reality but, rather, what is the best means of bringing some sense of order to its expansion. That, in a nutshell, is what a special committee appointed by Maryland Gov. Harry Hughes did last week when it issued a report on interstate banking. Indeed, the committee's analysis in support of its recommendations calling for regional reciprocal interstate banking states unequivocally that interstate banking already is a fact of life.
There is substantial evidence that "extensive" interstate banking already exists in Maryland and throughout the nation, the committee noted. Interstate competition for Maryland's banking industry, it added, is provided by 119 offices of out-of-state financial service organizations and in the form of nonbank banks, commercial loan production offices, Edge Act corporations for overseas ventures and other local facilities of out-of-state bank-holding companies. What's more, the spread of automatic teller machines and electronic funds transfer networks makes national interstate banking a reality.
Implicit in the committee's findings is the conclusion that national interstate banking is taking hold while Congress watches from behind a barrier of inertia. It is little wonder then that Maryland, like 19 other states, is attempting to establish some sense of order to the spread of interstate banking. Perhaps the ultimate solution lies in states coming to grips with the issue.
As an interim step to full-scale national interstate banking, meanwhile, the Hughes-appointed committee has recommended that Maryland adopt a regional format, calling for reciprocal agreements with the District and 13 states, mostly in the Southeast. The policy would be in effect for four years, during which Maryland would permit bank-holding companies from other states in the region to establish new banks in Maryland or merge with existing institutions. A so-called "trigger" provision under the Maryland plan would set the stage, after four years, for national reciprocal interstate banking.
The Maryland Bankers Association approves, albeit with some reservations. Citicorp is "ecstatic." On the surface, at least, the committee's recommendations form a great compromise position with which everyone can live.
Unless care is taken to trim some loose ends, however, the committee's otherwise neat little package could come unraveled.
The compromise also covers First Maryland Bancorp., which, along with its principal subsidiary, First National Bank of Maryland, is controlled by Allied Irish Banks of Dublin. Some regional pacts bar participation by foreign-owned banks. The committee believes, however, that Allied Irish's infusion of capital is important to the state and accepts First Maryland's declaration under federal law that Maryland is its home state. That may be okay in Maryland, but it might not play in Florida.
By insisting that Pennsylvania be included in the interstate banking region favored by the committee, the Maryland Bankers Association also threatens to unravel the compromise. "I feel that the report provides an excellent framework for the goals of the bankers association," William K. Weaver, executive vice president of the MBA, observed last week.
Weaver believes, nonetheless, that because Pennsylvania is a contiguous state, it should be accorded the same privileges that would be extended by Maryland to Delaware, Virginia, West Virginia and the District. "At this early stage, I feel that I would offer an amendment to include Pennsylvania when the bill comes up for action."
Consider it done.
Pennsylvania wasn't included in the committee's recommendations, Chairman Frank J. De Francis explained, because the panel wants to assure Maryland banks of having a "level playing field" during the four-year period of regional reciprocal interstate banking. "We felt that because of the size of some of the banks in Pennsylvania, including Pennsylvania would make that playing field uneven."
Each of Pennsylvania's five top banks has assets greater than the largest bank in Maryland and combined assets of the top two total $39 billion, compared with just $11 billion for the two leading Maryland institutions.
Given four years to solidify their positions, Maryland banks should be in a better position to compete, the committee reasoned. Citicorp had hoped two years would be the limit, but four years is the equivalent of half a loaf. "The committee did a fantastic job in recognizing what we were saying all along," declared Franklin Goldstein, lobbyist for Citicorp Financial Inc.
"It's a fair bill, and the important thing about the trigger is that it announces that once the trigger is passed, banks from outside the region can come in. If we have a definite date when we can come in, we can start planning," Goldstein remarked.
Translation: The planning has already begun.