Summary of Oral Testimony for Federal Deposit Insurance Corporation Hearing on the
Financial Services Roundtable’s Petition for Interstate Parity for State-chartered Banks
Trabo Reed, Deputy Superintendent of Banks, Alabama Banking Department
May 24, 2005
Background of the Alabama Banking Department in interstate bank regulation
Alabama, state-chartered banks do business in 15 (soon to be 19 states). We have extensive experience in interstate bank regulation. We have had no bank failure since 1987.
We constantly deal with interstate issues and questions faced by these banks. Rarely, does a week go by that we are not trying to sort through some issue involving the permissibility of an activity in a host state and the applicability of home state or host state law to that activity.
General Comments – Important Questions Concerning the Petition
In these general comments, I wish to focus on selective questions surrounding the petition. We believe that these are critically important questions that should be addressed up front.
Question: Is there really a problem that needs to be addressed?
Answer: Yes. The OCC Preemption has caused a critical competitive disadvantage for state-chartered banks trying to do an interstate business.
Our banks want to remain state-chartered; however, their business plans and markets change. With each state added, multiple regulators, licenses, and ongoing legal costs are added. The greatest problem, however, is a lack of certainty for state-chartered interstate banks.
Question: How important is it that the FDIC act on this petition?
Answer: We believe that this petition is the most important issue before the FDIC.
The future viability of the dual banking system depends on steps that we take now to restore parity for state-chartered, interstate banks. The decisions made by the FDIC on this petition are a critical step in preserving that system. We believe that, without efforts to rebalance the dual banking system, state-chartered banks may have no place in this “nationwide” banking system and denies choice to banks. A system where an interstate bank only has one choice of charter and regulator is not a dual banking system. This denial of choice harms all banks large, small, state, and national.
Question: Does the FDIC have the authority to act on this petition and is it the proper venue for addressing these questions?
Answer: The FDIC has the authority to act and is the appropriate regulatory body to decide these issues. There is also a critical need for the FDIC to step into the role of deciding the myriad questions surrounding state-chartered banks’ interstate operations.
The FDIC is the proper forum and arbiter of these questions. It’s your law to interpret. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 is codified in the Federal Deposit Insurance Act as was the Riegle-Neal Amendments Act of 1997 (“Riegle-Neal II). Often, with no authoritative source for interpretation and guidance on federal law home and host states have simply been left with confusion and compromises as we improvised our own rules from state to state. Our department and our banks now need rulemaking, guidance, answers, and certainty from the FDIC on federal banking law.
Question: What is the real question before the FDIC?
Answer: We believe that the real question before you is one of parity.
I urge the FDIC to define its deliberations in terms of and focus on the real question of parity. We would hope that your deliberative process does not get sidetracked by questions or concerns that can only be addressed at later dates in other forums. We ask that parity be the overriding focus of your deliberations on this petition.
Questions: Are there important issues that cannot be resolved by the FDIC in the context of this petition? Should these other issues be decided before the FDIC acts on this petition?
Answers: The answer to the first question is yes. Certain important questions and concerns have been raised which can only be decided at later dates in other forums. However, the FDIC can and should act on this petition to reaffirm parity for state-chartered banks and preserve the dual banking system without waiting for other bodies to solve every issue.
We have not chosen to use this hearing to dwell on other issues that we believe can only be decided at later dates in other forums. Some of these issues that we believe can’t be decided here are: the OCC Preemption, Consumer Protections, and the potential “race to the bottom.”
Question: Are there some particularly important issues in the petition on which, to restore parity, the FDIC can and should act?
Answer: Yes. Of particular importance are state bank activities (as distinct from activities of branches) and activities of state bank operating subsidiaries.
Activities - Because we believe that Congress clearly intended for state-chartered banks to be part of the nationwide banking system, we believe that Congress also intended for state banks to take part in that system through all means by which banking products and services are delivered to the nation.
Subsidiaries - At the heart of the contention surrounding the OCC preemption is the question of whether operating subsidiaries of a bank should be treated differently than the bank. Again, if the focus of your deliberations is on parity, the question before you becomes: “Does an operating subsidiary of a state-chartered bank deserve to be treated differently than an operating subsidiary of a national bank?” We think not.