Interstate Branching

Interstate Branching

Interstate branching means that a single bank may operate branches in more than one state without requiring separate capital and corporate structures for each state. The state of New York approved the first interstate branching statute in June, 1992. This law set several requirements and conditions on New York branches of out-of-state banks. It also required reciprocity, that is, that New York banks be allowed to branch into the home states of banks that branch into New York. North Carolina, Oregon, and Alaska passed similar laws in 1992 and 1993.

The Riegle-Neal Interstate Banking and Branching Efficiency Act allows national banks to operate branches across state lines after June 1, 1997. The federal law allows branching through acquisition only, which means that a bank holding company must acquire a bank and merge it into another bank in order to operate it as a branch.

The Riegle-Neal Act allows states to “opt out” of interstate branching by passing a law to prohibit it before June 1, 1997. A state that “opts out” of interstate branching prevents both state and national banks from branching into or out of its borders. If a state opts out, it may opt back in at any time by repealing its prohibition on interstate branching.

States may also “opt in” before the nationwide trigger date by passing a law to allow interstate branching for both state and national banks. States that do not wish to “opt out” must enact some form of legislation to allow state-chartered banks to operate branches across state lines, because the Riegle-Neal Act addresses branching rights for national banks only. States also have the power to authorize de novo branching across state lines, which means that a bank could simply open a branch in another state instead of having to acquire an entire bank.

Interstate branching will require many changes in the current system of bank supervision. Generally, state and federal regulators examine only a bank’s headquarters, not its branches. While this will probably continue to be the case in a system of interstate branching, state and federal regulators are working now on ways to collect and share the information they need about banks’ operations in multiple states and federal supervisory districts.