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Public Hearing on Preemption Petition

Comments of Carl E. Jones, Jr.
Chairman of the Board and Chief Executive
Officer Regions Financial Corporation

Submitted to the Federal Deposit Insurance Corporation

Pursuant to a Notice of Public Hearing In the matter of a Petition for Rulemaking to Clarify Certain State Laws

Regions Financial Corporation (Regions) hereby submits the following comments in this proceeding as part of the official record in the above-styled matter set for public hearing on May 24, 2005.

My name is Carl E. Jones, Jr. I am Chairman of the Board and Chief Executive Officer of Regions1 and offer these comments on behalf of the company. Regions is a member of the Financial Services Roundtable (Roundtable), as well as the American Bankers Association and other federal and state banking associations. We have worked with the Roundtable’s staff, outside counsel and other state chartered banks to promote the need for regulation in the area of parity for state chartered banks operating in interstate commerce. We endorse and adopt the conclusions of law and policy arguments presented in the Roundtable’s Petition as filed on March 4, 2005, and incorporate the language of the Petition as if restated herein. We urge the FDIC to promulgate the proposed rules in an expeditious manner.

Before I begin my substantive testimony, I want to commend the FDIC and its staff for conducting this public hearing on the Roundtable’s Petition. It is important that the challenges of interstate banking be examined on a regular basis and, where appropriate, creative and beneficial solutions be sought to address these challenges. The Roundtable did not undertake preparation of its Petition lightly, and the matters addressed are critical to the continued existence of the dual banking system in this country. My personal experience has been that, many times, the best solutions come from sitting down and having a conversation about issues that one confronts before undertaking a more formal review, then move forward with a clearer consensus and a more efficient path. I think the process that has started here today sets us on that path.

I would like to begin my testimony with an overview of my company and a brief explanation of our history. Regions is an integrated financial services company headquartered in Birmingham, Alabama, and able to provide services in all aspects of the financial services industry. We have grown to become one of the 15 largest financial services companies in the country with over $84.4 billion in assets as of March 31, 2005. We operate a number of subsidiaries located in several states: Morgan Keegan and Company, Inc., headquartered in Memphis, Tennessee, is one of the nation’s largest regional full-service brokerage and investment banking firms and serves as Regions securities brokerage arm. Morgan Keegan has more than 240 offices in 13 states and more than $490 million in equity capital; Morgan Asset Management is Regions investment advisory arm and manages more than $13 billion for institutions and high net-worth individuals; and, Regions Insurance

Group serves as the corporate structure for all Regions insurance-related subsidiaries that includes Rebsamen Insurance headquartered in Little Rock, Arkansas, ICT Insurance of New Iberia, Louisiana, and Regions Insurance Services located in Memphis.

Now, I would like to turn to Regions Bank. I believe an understanding the growth and expansion of our retail and commercial banking franchise will give appropriate context to our views of the following:

  • Regions believes preservation of the dual banking system should be of paramount importance to the FDIC and has been both mandated authorized by Congress;
  • Regions believes it is important to have a real choice of continuing as a state chartered bank, and
  • Regions believes that, absent action by the FDIC to promulgate the proposed rules in order to restore parity in the dual banking system, our continued participation in the interstate marketplace as a state chartered institution may be threatened.

What is now Regions Bank began as three separate banks: the First National Bank of Huntsville (chartered in 1865), the First National Bank of Montgomery, and the Exchange Security Bank of Birmingham. In 1971, First National Bank of Huntsville and Exchange Security Bank of Birmingham joined to create Alabama’s first bank holding company, First Alabama Bancshares and we renamed our banking operations First Alabama Bank. At that time, First Alabama Bank held over $550 million is assets. First Alabama’s initial foray into interstate banking occurred in 1987 with an acquisition of a bank in the panhandle of Florida, and by 1994, we had changed our name to the less parochial Regions Bank to reflect our growing operations in our seven-state footprint. With additional significant acquisitions of First National Bank of Gainesville, Georgia, in 1996 and First Commercial Bank of Little Rock, Arkansas, in 1998, Regions had grown to serve customers in nine states with assets of over $48 billion.

With our merger with Union Planters Corporation in 2004, the 25,000 associates of the new Regions Bank presently serve some 5 million customers throughout our 15-state geographic footprint through a network of over 1,300 branches and 1,600 ATM locations. We have grown and expanded as a state chartered bank headquartered in Alabama, and later this year will collapse the federal charter held by Union Planters Bank into our state charter, continuing to operate the new Regions Bank as a state chartered bank. Integral divisions of Regions Bank includes: Regions-Morgan Keegan Trust, the trust and asset management unit of Regions and has more than $37 billion in total assets, and Regions Mortgage, headquartered in Memphis, Tennessee, one of the nations top mortgage originators and servicers, and its operations include non-conforming wholesaler Equifirst, a premiere national lender based in Charlotte, North Carolina, that originates its production through a network of independent mortgages brokers and sells its loans on the secondary market.

Our history reflects success: success as we achieved growth through the acquisition of various respected community banks while managing to retain the character of a community bank, and success in the competitive interstate banking market as a state chartered institution. We have been successful, as well, in getting products and services into our key markets in a timely manner. This was facilitated by maintaining a close working relationship with our state regulator and relying on that regulator’s ability to work with host state regulators to resolve differences between each state’s regulatory laws. Regions Bank has operated effectively as a state chartered bank and, because of the abilities and efforts of our regulators have, for all intents and purposes, been able to function in a manner quite similar to that of a national bank. In addition, our success was enhanced by our willingness to customize our banking services to conform to host state law in each state to which we have expanded, absorbing the additional administrative, legal and managerial costs associated with such a multi-state business model.

Our current multi-state model reflects more of a patchwork quilt of state-to-state agreements rather than a seamless interstate banking mode, however. As fundamentally solid as the banking laws of Alabama are, the state Code requires much work from the state banking department to assure not only the safety and soundness of the financial institutions it regulates, but also to forge numerous agreements on a bank specific or issue specific basis between Alabama and each jurisdiction in which our state chartered banks conduct their business.

As we have grown in interstate markets, so have our competitors, many of whom have surrendered their respective state charters to become national banks. Regions Bank closely examined the opportunities, benefits and costs of operating its bank under a federal charter or remaining a state chartered bank as part of our ongoing integration process with Union Planters Bank before electing go forward under our Alabama charter. Part of our decision to remain state chartered rests on our belief that a federal charter has no more true value to our present business model than a state charter because Congress has provided a law that established parity for each under the traditional dual banking system. However, should our business needs change or should it become necessary to alter our current mix of businesses or services in order to remain competitive, we would necessarily give serious thought to becoming a national bank because of the action of the Office of the Comptroller of the Currency (OCC) in 2004 to issue regulations to delineate uniform standards for national banks to operate under a uniform, nationwide business model. Accordingly, the adoption of the rules proposed in the Petition by the FDIC is necessary to maintain balance in the dual banking system.

Let me note for the record that we find no fault in the rules issued by the OCC last year, insofar as the rules go. The application of federal law and existing regulatory principles reflect Congressional intent in the creation of a set of rules for national banks. However unintended the consequences might have been, the OCC rule serves only the interests of national banks, potentially to the detriment of state chartered banks, thereby creating a preference for the federal charter for banks seeking to compete nationwide. We believe the proposed rules outlined in the Roundtable’s Petition preserves the necessary competitive balance between national banks and state chartered banks, and would set standards for state chartered banks operating in interstate commerce with similar clarity and certainty as the OCC rules provide for national banks. Accordingly, the adoption of the rules proposed in the Petition by the FDIC is necessary to maintain the balance of the dual banking system.

Allow me to note as well that the principle of parity we advocate works in both directions. Some have challenged the legality of the OCC’s rule and are seeking to reverse it, through court challenges or by legislative enactment. Should such a reversal occur at some point after the FDIC has adopted the rules proposed in the Petition, state chartered banks would not be catapulted to a superior position relative to the national banks; rather, state chartered banks would be back to where we were prior to the finalization of the OCC rules. Parity works in the dual banking system so that as a “rising tide lifts all boats,” and those same “boats” return to their original position as the “tide goes out.”

Now, I would like to turn to the several specific points raised in Notice of Public Hearing issued in this proceeding.

First, let me state unequivocally that the goal of the Petition is not to seek preemption of state law. As I have indicated herein, Regions Bank operates effectively in our current environment by adapting to the many and varied legal regimes where we have chosen to do business. The proposed rule does, however, seek a clarification concerning the application of home state law to support interstate banking activities. As I appreciate the request, if the proposed rule were adopted, state chartered banks would not be operating under federal law except in very limited circumstances, but rather would export more fully their home state statutes and regulations, providing more certainty and uniformity to our business services under our home state regime. Host state law would continue to apply to all areas of our services to the same extent as host state law would apply to national banks. Where federal law applies solely to national banks, home state law would apply equally to state chartered banks in those same areas. The proposed rule also would reestablish regulatory parity for state chartered banks relative to national banks as each type of bank competes in interstate commerce. This is the first step in state chartered banks being able to offer products and services under a more uniform, nationwide business model.

Thus, the Petition seeks to have the FDIC recognize and act on its authority to issue regulations giving effect to Congress’ clear intent, giving practical meaning to existing federal law, and clarifying how state chartered banks may operate more consistently under a truly interstate business model. If adopted the proposed rule would not put the FDIC ahead of Congress in setting new public policy for interstate banking; rather the FDIC would be setting out in its rules the policy Congress already has adopted for preservation of the dual banking system since the enactment of Riegle-Neal II in 1997.

Second, this rule promotes competition among banks and enhances consumer choice. Customers should be able to walk into a branch of any bank in their state and be indifferent as to whether it is a state chartered or federally chartered bank. Furthermore, as mobile as our present society is, a Regions Bank customer should be able to visit any Regions Bank branch in any state throughout our service territory and find the same products offered in the same manner and on the same terms and conditions has a branch back home. Such is not the case today. In certain areas, the primary competition for national banks comes from state chartered banks, not other national banks. Therefore, lack of parity in the application of the home state law or in federal rules provides an unfair competitive advantage to national banks both in terms of the timing of getting products and services into the market and in how their customers may be treated as they migrate from state to state.

Third, the proposed rule further protects consumers through the preservation of the dual banking system. The dual banking system has worked well for over 100 years, with state chartered banks able to export key provisions of home state law in interstate commerce under the provisions of Riegle-Neal II for the past 8 years. The path on which we find ourselves, however, is headed toward an unfortunate result of having only two types of banks in the future – large national banks operating on a multi-state basis, and small to mid-sized community banks operating in one or only a few states. There remains a need for a third category of bank – the large, state chartered bank operating in interstate commerce on a nationwide or super-regional basis, to ensure that parity in the traditional dual banking system remains.

At present, approximately 75 percent of all domestic banking assets are held by national banks, although approximately 80% percent of the total number of banks in operation are state chartered banks.2 A business model where all “big” banks are federally chartered banks, and all “small” banks are state chartered community banks operating solely within a single state or a few states is not a dual system of bank operations– it is two separate and unequal systems. Duality requires parity. Parity promotes competition, real competition, in terms of getting properly priced products into each market in real time, and competition promotes maximum consumer benefit through choice.

States cooperate at the regulatory level under the auspices of a national compact and through a series of individual agreements between two or more states, wherein potential conflicts of state law are resolved and the role of each regulator in administering a bank’s interstate activity is defined. Many times these agreements are bank or issue specific, and involve the mutual commitment of state regulators to interpret or enforce provisions of their respective state law in a particular way. These agreements work in large measure because the out-of-state state chartered bank can rely on the agreement as controlling host state law in that jurisdiction. That is both the beauty and the pitfall of state chartered bank regulation – we are close enough to our home state regulators that a customized approach to a proposed interstate transaction can be achieved through personalized one-on-one negotiations between the state regulators; yet, the willingness of a particular state banking department to rely on assurances of their foreign counterpart is, in many respects, dependent on a professional relationship between long-serving individuals in their respective states that may not survive at an institutional level if those individuals retire, leave their posts, or get replaced following a change of administrations.

Working under a series of agreements negotiated by the Alabama Banking Department has worked well for Regions Bank, by developing a case-by-case understanding with their respective host state counterparts - - not always as fast as we might have hoped and not always as planned, but nevertheless it is a model that has served us well as we have grown. Going forward, the state-by-state, issue-by-issue process could cause extended delays and more unpredictable outcomes as we enter new markets or expand our products and services in current markets in order to remain competitive. Operating a multi-state business is not the same as operating under a nationwide business under a single, uniform interstate plan like the national banks are afforded under the OCC’s guidelines.

Banks structured like Regions Bank do have a choice of charters under which to operate. That choice should be available to the bank based on its business needs and operational changes, and not be effectively taken away from bank officials because an unbalanced regulatory regime exists that unduly favors one charter over another. During our recent internal evaluation of the business needs and opportunities afforded us under the two charter approaches, Regions Bank examined several critical features including: costs of supporting multi-state banking and related financial services activities; limitations and restrictions on providing equivalent services in all our footprint states; potential for customer and employee impact; and complexity of managing overlapping regulatory jurisdictions. In the end, we determined that our existing operations had been adapted to function efficiently under our state charter, it was desirable to continue our positive, historical experience of operating under an Alabama state charter, and our total cost of regulation was minimized. We did not make this decision lightly, or in a vacuum, as we were aware of initiatives such as this present proceeding that were examining important enhancements to the current regulatory regime as well as other potential legislative proposals at both the state and federal levels.

Regulatory tension between federal regulators and the various states interested in fostering a competitive climate for their state chartered banks providing interstate banking services is a good thing - - it keeps regulators at both levels active and engaged in the business needs of their regulated banks and constantly monitoring their fees and services to efficiently and fairly serve these constituents. Federal rules that evolve to give undue preference to national banks conducting interstate business is contrary to Congress’ clear intention to maintain a dual banking system in this country. Such federal rules also serve to break that competitive tension in favor of creating a dominant, preferred charter. Preservation and maintenance of the historic dual banking system is the best means available to ensure banks remain competitive on a local and national basis, and that consumer choice is preserved.

For the reasons indicated, Regions endorses the legal and policy arguments presented herein, and as contained in the Roundtable’s petition, and urges the FDIC to move forward with the promulgation of the proposed rules.

Addendum 1
Addendum 2

1 Biography of Carl E. Jones, Jr. attached to this testimony as Addendum 2

2 Source: See also, Council of State Bank Supervisors (CSBS), - PDF 38k (PDF Help)

Last Updated 05/24/2005

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