On September 29, 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was signed into law by President Clinton. On a phased basis, this Act opens the door for interstate banking and branching. The most significant aspect of the Act are that it permits, subject to certain limitations, bank holding companies to acquire out-of-state banks, interstate mergers between insured banks and interstate branching through de novo branches.
Acquisition of Out-of-State Banks
After September 29, 1995, bank holding companies will be permitted to acquire out-of-state banks. Such transactions, however, will not be permitted if:
- the target bank has not been in existence for the minimum period of time required under its state law, unless the target bank has been in existence for at least 5 years;
- the acquiring bank controls, or upon acquisition would control, more than 10% of the total deposits of U.S. insured depository institutions.
- in the case of a non-initial entry into a state by the acquiring bank, the acquisition would result in the acquiring bank controlling 30% or more of the total amount of deposits of the insured depository institutions in the target bank's state, unless the state approved the transaction or has a law which permits greater than 30% control; however, states can enact non-discriminatory legislation in order to reduce this concentration limitation.
Interstate Mergers
Beginning June 1, 1997, interstate mergers between insured banks will be permitted, subject to the same state existence requirement and concentration limits as discussed above. Further, such mergers will only be allowed if the involved banks are adequately capitalized and the resulting bank will continue to be adequately capitalized.
Unlike the provision permitting acquisition of out-of-state banks, the Act permits states to opt-out of this portion of the legislation and prohibit interstate mergers within their borders by enacting legislation prohibiting such conduct before June 1, 1997. Further, states can op-in early by passing legislation which would permit interstate mergers prior to June 1, 1997.
Interstate Branching Through De Novo Branches
The new law permits national and state banks to establish de novo branches in states which have adopted nondiscriminatory laws that allow the establishment of such branches. Again, this is subject to the existence requirements, concentration limits and adequate capitalization requirements as discussed above.
Miscellaneous Provisions
After September 29, 1995, bank holding company affiliates will be permitted to take deposits, close loans, service loans, and act as agents for each other.
* * *
The New Jersey State Department of Banking has recommended that New Jersey opt-in early to this legislation. It is believed that by opting in early, New Jersey will be able to take advantage of many business opportunities. There has been concern expressed by consumer groups, however, that allowing interstate mergers will result in large banks which may not be responsive to community needs. Further, there is resistance to de novo branching from banking trade organizations representing New Jersey banks.
