Federal Deposit
Insurance Corporation

Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW.
Washington, DC 20429

Re : Proposed Rule: Interstate Banking; Federal Interest Rate Authority-RIN 3064-AC95

Dear Mr. Feldman:

This letter is submitted on behalf of Regions Financial Corporation (Regions) in the above referenced proceeding (Proposed Rule). Regions is a member of the Financial Services Roundtable and endorses the Roundtable’s separately filed comments. This letter is offered to amplify key arguments to modify the Proposed Rule as presented by the Roundtable.

In May 2005, Regions Chairman Carl E. Jones, Jr. presented testimony before the FDIC stating that Regions’ objective in this proceeding is to seek “clarity and parity” in the application of host State laws to the activities of state-chartered banks operating in interstate commerce. “Clarity” comes from clear and unambiguous interpretations of statutes where subsequent judicial interpretation is less necessary, or at a minimum, the process of obtaining useful court opinions is less complicated. “Parity” comes from having the legal authority to get competitive products and services into the marketplace to serve our customers in real time, without the need to resort to lengthy litigation or protracted regulatory proceedings in order to compete with national banks that may already be providing such products and services to their customers, and potentially to our customers.

The FDIC and its staff are to be commended for recognizing both the seriousness and urgency of the issues presented by the Roundtable in its initial Petition for Rulemaking. The Proposed Rule does succeed in making a significant move toward the ultimate goal of parity in the interstate marketplace, principally in the areas of exportation of interest rate regulation and activities that can be conducted through branches in host states.

However, in adopting the language of Section 362.19, the Proposed Rule complicates reasonable interpretations of the parallel provision of Riegle-Neal II taken on a stand-alone basis, and creates: more uncertainty; the potential need for judicial intervention into market decisions; and a rule that potentially discriminates against the very state-chartered banks the statute was intended to help.

The relevant section of Riegle-Neal II provides:

(j) Activities of Branches of Out of State Banks

a. Application of Host state Law

The laws of a host State, including laws regarding community reinvestment, consumer protection, fair lending, and establishment of intrastate branches, shall apply to any branch in the host State of an out-of -state State bank to the same extent as such State laws apply to a branch in the host state of an out of state National bank. To the extent host state law is inapplicable to a branch of an out-of-state State banking in such host state pursuant to the preceding sentence, home state law shall apply to such branch.¹

As written, Riegle-Neal II allows state-chartered banks to offer products or services in a host state based on the applicability of host state law to national banks offering similar products or services, and if challenged, to resort to the courts for a concurrence as to applicability of host state law to this offering. The sources for determining whether host state law is applicable to the activities of a national bank or out-of-state state bank are not limited, and the statute would allow for any court of competent jurisdiction to examine evidence from any number of sources: prior host state or federal court rulings, OCC rules, interpretations, orders, general counsel opinions, actual conduct of national banks in the interstate marketplace, or any other instructive evidence presented by a petitioner, including findings by state courts as to the applicability to state law to national banks. Currently, out-of-state, state banks have several options to begin providing new products or services in a host state: negotiate with the host state to reach an agreement on how the product or service would be offered, go to federal court for a determination of the applicability of host state law to its intended offering, or roll the dice and make the offering under the applicant’s home state laws and hope the bank will not have its activities challenged. Each of these options may ultimately result in an offering reaching customers in the host state, but at the cost of delays in responding to the competitive offerings of national banks and potentially high court costs, or the risk that its activities may ultimately be found illegal.

The benefit to of a rule implementing the provisions of Riegle-Neal II state-chartered banks is to provide an opportunity to address and resolve issues in advance of entering a market. The bank could also avoid the uncertainties and expense of going to court, as well as utilize the expertise of the FDIC to provide guidance to all parties in the confines of a defined process, thus producing results to meet competitive threats in real time.

In his comments submitted prior to the issuance of the Proposed Rule, Congressman Barney Frank (D-MA) indicated that the language of Riegle-Neal II was intended by Congress to be, and was, in fact, self-executing in providing parity for state-chartered banks. We agree with the general premise of this contention. Our support for a rule implementing this provision of Riegle-Neal II is not due to a disagreement with the general nature of the statute reflected in Congressman Franks’ view, but rather is to give support to Congressional intent by establishing a regulatory procedure to verify and endorse interpretations offered by applicants when host state law does and does not apply to activities of state chartered banks in interstate commerce. Furthermore, our belief that a rule creating an alternative federal forum for resolving potential disputes over the applicability of host state law did not foresee a result where the clear meaning and intention of the statute would be restricted or obfuscated by such a rule, as is the case with the proposed language of 362.19.

Section 362.19 of the Proposed Rule provides:

“(c) A host State law does not apply to an activity conducted at a branch in the host State of an out-of-State, State bank to the same extent that a Federal court or the Office of the Comptroller of the Currency has determined in writing that the particular host State law does not apply to an activity conducted at a branch in the host State of an out-of-State, national bank. If a particular host State law does not apply to such activity of an out-of-State, State bank because of the preceding sentence, the home State law of the out-of-State, State bank applies (emphasis added).”

70 Fed. Reg. at 60031.

By inserting two material deviations from the language of Riegle-Neal II, the FDIC has potentially created a rule that is ambiguous as to what type of “writing” is sufficient to meet this standard, or to whether a national bank offering products or services in the marketplace without the benefit of a specific “written” determination by the OCC could not be used as evidence of the applicability of the statute to state banks. Also, the language proposed by the FDIC draws into question whether actions of a federal court or the OCC applicable to a body of state law rather than a single statute of a single host state code can be considered. The Proposed Rule also injects the OCC into direct regulation of state-chartered bank activities, by allowing the OCC to act or withhold action on petitions by state banks for determinations of the applicability host state laws apply to their interstate banking activities as a recognized part of the FDIC determination process.

Regions recommends the following modifications to Section 362.19 in the Final Rule:

a. Revise 362.19 to more closely mimic the language of 12 U.S.C. 1831a (2001) and remove the references to determinations “in writing” and “a particular host state law;”

b. Clarify that any determinations made by a Federal or state court, or by the OCC, including all agency actions such as General Counsel opinion letters, agency interpretations, or orders from adjudicated proceedings, may be considered by the FDIC in reviewing an application under this rule;

c. Further clarify the Proposed Rule by stating that the FDIC shall take notice of all court orders and all actions of the OCC and shall base its findings on an application filed under this Rule on any such relevant source. Where no court has rendered an opinion and/or the OCC has not taken any action with regard to the issues raised by the applicant, the FDIC shall consult with the OCC and seek its guidance as to the issues presented, but shall nevertheless act on the application in a time-sensitive manner to make its own determination. The failure of the OCC to provide definitive guidance within a reasonable time period should not be a barrier to the FDIC making its own determination as to the applicability of host state law to the activities of an out-of-state, state bank in a host state.

Respectfully submitted,