The comptroller of the currency said yesterday that banks ought to be allowed to branch in states that they enter to acquire a failing institution.
The comptroller, Robert L. Clarke, said that to encourage healthy banks to buy failing institutions, the out-of-state bank should be given the right to expand into the three largest metropolitan areas of the state in which the sick bank is situated.
Clarke said in a speech to commercial bankers here that bank regulators and legislators are trying to devise new ways to deal quickly with severely damaged banks to minimize the impact of bank failures on the local community, the federal deposit insurance fund and the banking system in general.
The proposal appears aimed at Texas, where many banks have been hurt by plunging oil prices, but where state laws limit the branching authority of banks. Because of the branching restrictions in Texas, many big banks are reluctant to buy an institution in that state.
Under the proposal put forth by Clarke yesterday, out-of-state banks that purchase a dying Texas bank would be allowed to set up operations in the state's three largest metropolitan areas: Houston, Dallas and San Antonio.
The House Banking Committee will begin hearings this week on legislation designed to deal with failing banks, and the Senate Banking Committee is expected to take up the legislation soon. The legislation has been requested by the three federal bank regulatory agencies -- the Comptroller's of the Currency's Office, the Federal Deposit Insurance Corp. and the Federal Reserve Board.
Clarke said that the plunge in the price of oil does not represent a threat to the banking system as a whole, but acknowledged that further declines in oil prices could seriously weaken many banks in the Southwest.
More than 100 of the 563 banks the regulators classify as energy lenders -- those with more than 25 percent of their loans to oil and gas companies -- are on the list of problem institutions maintained by the FDIC, the federal agency that supervises about 8,500 state-chartered banks and insures deposits up to $100,000 in nearly all the nation's 15,000 banks. The FDIC also takes over the assets of failed banks.
Clarke said regulators are searching for ways to reduce the impact on the FDIC in the event of an increase in bank failures due to declining oil prices.
He said regulators are asking for authority to permit out-of-state banks to buy failing banks -- those that are still solvent but have little chance of surviving. Presently the regulators can sell only banks that have been closed. By the time a bank has closed, its value to potential purchasers has eroded.
Three years ago, Congress gave regulators the option to seek out-of-state purchasers for failed banks with assets of $500 million or more if no in-state buyer could be found. Until regulators received that authority, they could not look for a buyer in a state other than the one in which the failed bank was based.
The regulators are seeking to have the $500 million threshold cut in half and applied to failing banks as well as those whose doors have been closed.