Depository institution regulatory reform in the 1980s: The issue of geographic restrictions
Author | Stanley M. Gorinson |
DOI | 10.1177/0003603X8302800109 |
Published date | 01 March 1983 |
Date | 01 March 1983 |
Subject Matter | Article |
The Antitrust Bulletin/Spring
1983
Depository institution regulatory
reform in the 1980s: the issue
of
geographic restrictions
BY STANLEY M. GORINSON*
I. Introduction
227
Depository institutions' are in the midst
of
a struggle to remove
the shackles
of
restrictive regulation while a financial services
revolution is taking place. That task,
of
course, is made even
more difficult by a philosophical split between firms who believe
• Chief, Special Regulated Industries Section, Antitrust Division,
United States Department of Justice.
AUTHOR'S NOTE: The views represented herein are solely those
of
the
author and do not necessarily· represent those
of
the Department
of
Justice.
I wish to thank Bill Markovits, Attorney, Special Regulated Indus-
tries Section,
for
his invaluable assistance in the
research
and writing
of
this article.
After
this article was submitted, Congress enacted the Gam-St.
Germain Depository Institutions
Act
of
1982, Pub. L. No.
97-320.
As
a
result
of
that statute particular statements included in this article may
have been rendered somewhat obsolete. However, the basic thrust
remains the same.
ICommercial banks, and thrift institutions-e.g., savings and
loan (S&L) associations, credit unions, and mutual savings banks.
©1983 by Federal Legal Publications, Inc.
228 The antitrust bulletin
they obtain continued competitive advantage from regulation and
those who see greater and more stable profit opportunities in an
open environment. Like many other regulated industries, deposi-
tory institutions have been subject to constraints in three areas:
pricing, provision
of
new products and services,
and
entry into
new geographic markets. Due to the lack
of
consensus among
depository institutions, as well as the awe and "reverence in which
the financial sector is held by both political leaders and the
general public, much-needed regulatory reform has been slow in
coming. Pricing and product restraints are gradually giving way.
As a general proposition, however, geographic restraints imposed
upon banking organizations remain sacrosanct.
The McFadden Act
of
1927 (Mcfadden)' and the Douglas
Amendment to the Bank Holding Company Act
of
1956
(Douglas)' are the two major restraints on geographic expansion
of
banking organizations. The appropriateness
of
these long-
standing restrictions, however, must be reassessed in light
of
three
important developments in the financial services industries: the
emergence
of
new competitors to banks; pricing
and
product
deregulation; and geographic expansion through means other
than
deposit-taking branches. The historical rationales behind
2The McFadden Act of 1927, 44 Stat. 1224 (codified at scattered
sections in 12 V.S.C.). McFadden generally restricts national banks
from establishing "branches," defined as "offices at which deposits are
received or checks paid or money lent
...
," except in accordance with
the laws of the state in which the bank is located. 12 V.S.C. §36 (1976).
Since no state currently permits banks to branch on an interstate basis,
McFadden prohibits national banks from interstate branching.
S&Ls are not subject to the
M~adden
Act, yet the Federal Home
Loan Bank Board (FHLBB) for many years generally prohibited S&L
expansion to within 100 miles of the home office unless state law was
less restrictive. 12
C.ER.
§556.5(b)(3) (1979). In 1981, the FHLBB
began to permit statewide branching regardless
of
state law. 44 Fed.
Reg. 36,012 (1979) (codified at 12
C.ER.
§556.5(a)(2».
312 V.S.C. §1842(d) (Supp. IV 1980). Douglas prohibits bank
holding companies from expanding on an interstate basis through
acquisition unless the state in which the acquired
bank
is located
expressly consents to that acquisition.
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