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.