Public Hearing on Preemption Petition
Testimony of Mr. John Presley
and M&I Marshall & Ilsley Bank to FDIC
Regarding Petition for Rulemaking to Provide
Interstate Banking Parity for State Banks
May 24, 2005
Good afternoon. My name is John Presley; I am Senior Vice President and Chief Financial Officer of Marshall & Ilsley Corporation. Marshall & Ilsley Corporation is a diversified national financial services company with over $41 billion in assets, headquartered in Milwaukee, and M&I Marshall & Ilsley Bank is the Corporation's lead bank. M&I Bank has assets of approximately $35 billion and is the largest bank headquartered in Wisconsin. The bank operates approximately 48 interstate branches in Minnesota and Arizona, and delivers business and consumer banking products and services to customers on a nationwide basis.
M&I Bank's history dates back almost 160 years to its organization in 1847 as a private bank, the year before Wisconsin was admitted to the Union. M&I Bank started being regulated as a Wisconsin state chartered bank in 1888. M&I has continued as a state chartered bank since that time, and has been regulated during this period by the Wisconsin Department of Financial Institutions and its predecessor agencies. The bank has had, and continues to have, excellent relationships with its state regulator.
I am here today to testify in favor of the Petition for Rulemaking that has been submitted to the FDIC for consideration. Our bank believes strongly that the FDIC should adopt the proposed Rulemaking and should act expeditiously in order to prevent the further migration of larger banking organizations out of the state system and into the national banking system.
If the FDIC fails to act to give state banks like M&I the interstate competitive parity that we need to compete with national banks, it is an alarming but real consequence that the dual banking system, as it has existed for more than a century, simply will not survive. Instead, the present system of bank regulation stands at risk of being forever altered, with smaller community and intrastate banks dominating the state system, and money center, regional and banks with multi-state operations being regulated almost exclusively by the OCC.
M&I Bank is an excellent example of how the marketplace for the delivery of financial services has changed since Congress passed the Riegle-Neal Interstate Banking Act in 1994. Our bank's growth in the delivery of interstate products and services over the last decade illustrates why this Rulemaking has such importance for state banks.
When Riegle-Neal was passed in 1994, M&I Bank operated branches only in Wisconsin. Today, in addition to our almost 200 branches in Wisconsin, M&I Bank also operates 48 branches in Arizona and Minnesota. Less than half of our Corporation's revenues in the first quarter of 2005 stemmed from Wisconsin banking operations, compared with over 70% four years ago. Our bank is evolving into a multi-state financial services delivery unit, but we are often unable as a result of state laws to deliver or integrate these products and services on a consistent, uniform platform. National banks and federal thrifts do not share this structural impediment because of federal preemption of state laws.
To compete fairly with federally-chartered banks, state banks like M&I must be able to better integrate their product offerings by using a uniform platform that does not have to change for every state. This result will not be possible, however, unless the FDIC adopts the principles set forth in the Petition for Rulemaking and passes new regulations to preempt certain state laws, thereby allowing state chartered banks to compete on a level playing field with national banks and federal thrifts.
Let me say a few words about the dual banking system and why the continuance of this system of banking regulation bears such importance. Over the past century state legislators and state banking regulators have often been at the forefront of important innovations in the delivery of banking services, and in the enactment of strong consumer protection laws. Without continuing a system of dual banking regulation where banks with interstate operations have a real, viable choice to remain as a state charter, it is likely in our opinion that these successful state experiments and innovations in financial services will decrease dramatically. What will remain is a banking system in the United States where innovation and change will become almost exclusively the province of the federal banking regulators, and the role traditionally played by the states will be diminished or lost.
What are some examples of these previous state-driven innovations? One example was the authorization of banks to pay interest on NOW Accounts, a key development in the banking industry in the 1970's and an important new checking product for customers at the time. The State of Massachusetts first authorized NOW Accounts for banks.
Another example comes from our state, Wisconsin, which in the early 1970's adopted the nation's most comprehensive consumer credit protection statute—the Wisconsin Consumer Act. Wisconsin continues to be the only state in the country where, because of the Consumer Act, an auto loan creditor is unable to repossess a car after default, but must instead first proceed to court to obtain a repossession order. No other state protects consumers in this way, nor has the OCC ever enacted a similar consumer protection measure to be followed by national banks. My point here is simply that state legislative actions affecting financial services under the dual banking system have often directly benefitted consumers.
I also have some concrete examples of how, as a state chartered bank, M&I must operate with less efficiency and uniformity than a comparably situated national bank, and accordingly why this Rulemaking is so critical to our bank.
M&I Bank, through a subsidiary, operates an indirect automobile finance business through approximately 1,800 auto dealers, located in 17 states. Because this business is not structured as a national bank or an operating subsidiary of one, we must comply with different licensing, filing, and examination requirements in each of the states where we have operations. In addition, we must spend considerable cost and effort, on a regular and continuous basis, determining applicable state credit and disclosure requirements in order to remain in compliance with these separate state laws. None of these same costs, tasks, or program inefficiencies are required for a national bank or a federal thrift offering the same financial product as we do in these markets.
As a second example of the inefficiencies that are inherent in the current regulatory structure, M&I Bank offers retail home equity loans and lines of credit in more than 38 states through a large network of mortgage brokers and other wholesale originators. However, because of the many differing state laws regulating mortgage lending, we are unable to use a consistent delivery platform and must tailor our loan and disclosure documents individually for each state. Again, this is a considerable expense and inefficiency that national banks competing with our loan products need not bear, and this difference in treatment poses a serious burden in our ability to compete fairly with other types of depository institutions.
As set forth in detail in the Petition, we believe existing law provides sufficient authority for the FDIC to promulgate the rules proposed in the Petition. The legislative history behind the 1997 amendment to Riegle-Neal also underscores that Congress intended the legislation to preserve the existing dual banking system.
Representative Roukema, who introduced the 1997 amendments, stated on the House floor that "[t]he essence of this legislation is to provide parity between State-chartered banks and national banks. . . . This legislation is critical to the survival of the dual banking system. . . . [A] strong State banking system is necessary for the economic well-being of the individual States and for innovation in financial institutions."
Similarly, Representative LaFalce from New York noted about the 1997 Riegle-Neal Act amendments that "[the bill's] passage is vital to maintain the dual banking system. It is the dual banking system that . . . has helped to ensure that our U.S. banking industry has remained strong and competitive." These comments by Representative LaFalce echo those made at the time by a number of other Senators and Representatives, from both political parties.
To conclude my remarks, M&I Bank fully supports the Petition for Rulemaking. We urge the FDIC to move quickly in enacting these proposals, to improve competition in financial services, and to maintain the present quality and dynamic balance of our country's dual banking system. Should the FDIC fail to promulgate those rules, you will have sent a message to M&I and other state chartered institutions that simply states that we must become a national bank if we wish to compete on an interstate basis.
Thank you for the opportunity to present the views of M&I Bank on this subject.