The Supreme Court yesterday put a kink in the expansion plans of several of New York's biggest banks by ruling that states may band together in regional compacts to permit interstate banking without having to open their doors to banks from all states.
The ruling, however, clears the way for a number of regional mergers that were put on hold pending the Supreme Court ruling and may spur some state legislators to enact regional banking bills.
Maryland and Virginia have recently passed bills that would permit reciprocal interstate banking with other southeastern states and the District of Columbia. A D.C. City Council committee last week approved a similar bill.
Yesterday's Supreme Court decision, which spoke specifically to the constitutionality of a New England pact, removes any cloud over the Southeast arrangement.
But the state laws governing interstate banking are now a hodgepodge. Some states welcome banks from any state. Some permit only regional interstate banking. In some states the regional banking legislation contains a trigger that will introduce full interstate banking at some point. Other states have no such trigger. And some states are not even considering changing their statutes to permit out-of-state banks to do business within their borders.
Legislators, bankers and analysts agreed that ultimately Congress will have to reshape the banking laws.
House Banking Committee Chairman Fernand St Germain (D-R.I.) said yesterday that Congress must determine "the guidelines under which regional compacts should operate and whether at some future date the nation should move beyond compacts to full interstate banking." The Banking Committee is scheduled to vote Wednesday on a bill that would permit regional compacts, provided they contain a trigger leading to full interstate banking.
Citicorp, the nation's biggest banking organization and the one furthest along in developing a nationwide deposit-gathering capability, challenged as unconstitutional Massachusetts and Connecticut laws that permitted only regional interstate banking.
Citicorp Vice Chairman Hans Angermueller said that he was "disappointed" by yesterday's decision, but said if there is a benefit, it seems to be the "need to review" the laws governing restrictions on nationwide banking. He said that state laws restricting the entry of all out-of-state banks "penalize the customer by perpetrating the protection of banks themselves." Proponents of interstate banking say it would increase competition and benefit borrowers and depositors.
Federal Reserve Board Chairman Paul A. Volcker has urged Congress to require states to permit full interstate banking within three years, saying that interstate pacts will lead to the "Balkanization" of banking.
Luther H. Hodges Jr., chairman of National Bank of Washington, said that the Supreme Court decision was "a step in the right direction," but that Congress "ultimately will have to speak to nationwide triggers."
Hodges said that regional banking is designed to give smaller regional banks time to consolidate their bases before confronting competition from the major so-called money-center banks based in New York, California and Chicago.
Nearly as soon as the Supreme Court decision was handed down yesterday, Bank of Boston Corp. announced it would complete the acquisition of a Connecticut and a Rhode Island bank "as soon as it is legally practicable." Like a number of other regional mergers, the Bank of Boston acquisition had been put on hold pending the court ruling.
Locally, United Virginia Bank's intention to merge with NS&T Bankshares Inc., which owns Washington's fifth-largest bank, was contingent on the Supreme Court decision and on the District's approval of its own regional banking legislation.
James Wooden, who follows the banking industry for the giant securities firm Merrill Lynch, Pierce, Fenner & Smith, said that the decision is a bigger blow for Chase Manhattan Corp. and Chemical New York Corp. than for Citicorp. All three giant New York banks are interested in being able to gather consumer deposits across the country.
But Citicorp has bought ailing savings and loan associations in Illinois, Florida and California that have given it access to three of the nation's most lucrative markets.
Citicorp, under another Maryland law, will be permitted to open up a full-service bank in the state by July 1986. But that bank will not be able to join the Southeast regional banking compact.