Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 6, 1994 TAG: 9403070129
SECTION: BUSINESS PAGE: B-1 EDITION: METRO
SOURCE: BY JAMES GREIFF KNIGHT-RIDDER NEWSPAPERS
DATELINE: CHARLOTTE, N.C. LENGTH: Long
That barrier is a set of laws adopted separately by the Southern states in the mid-1980s and collectively known as the Southeast Regional Banking Compact.
For nearly a decade, the compact blocked once-bigger Northern banks from buying up Southern banks. That same wall also kept Southern banks from leaving the region.
South Carolina, Georgia, Florida and Virginia - four out of the dozen states that originally belonged to the compact - are considering dropping out. North Carolina has already decided to take down the fence around its borders.
Both houses of the Virginia General Assembly passed legislation this winter taking the state out of the regional compact. Gov. George Allen is is expected to sign the bill, which would make the move effective July 1.
The Virginia Bankers Association sponsored the bill. Its executive director, Walter Ayers, said there were no negative votes and no opposition in the legislature.
Ayers said the bill provides for reciprocity. That means Virginia would allow banks based outside Virginia into the state only if they are from states that would admit Virginia-based banks.
He expects no wholesale mergers across state lines until all banks in the Southeast Compact pass similar legislation or until Congress permits unrestricted interstate banking.
``The Southeast Compact has achieved what it was originally designed to do,'' said Marion Cowell Jr., general counsel of Charlotte, N.C.-based First Union Corp., parent of Roanoke-based First Union National Bank of Virginia.
While the compact helped some Southern banks grow, it also was a tool for economic development. Big Southern companies traditionally headed to New York or Chicago for their banking needs. For the South to thrive, it needed bigger banks capable of serving homegrown industry. Bigger banks also would help draw new business so vital to the region's growth.
The compact worked, helping to fuel an economic boom that to this day makes the South the country's economic whiz kid. In the process, Charlotte was transformed into the glittering banking capital of the South.
In a sign of how strong some Southern banks are, executives at banks such as Charlotte-based NationsBank Corp. and First Union say they no longer want or need protection. They'd rather have the freedom to head anywhere in the nation, buy other banks and keep growing.
Maintaining the compact, they claim, does more harm than good. Instead of thriving as they have behind their impenetrable wall, Southern banks will be shut out of opportunities to grow. Should that happen, economic growth could be stifled.
``There are five or six or seven institutions capable of competing on a national basis,'' Cowell said. ``That opportunity should be provided. If it's continued, it will likely have a negative impact.''
The unraveling of the compact is largely the work of NationsBank, the country's third-biggest bank and the industry's most vocal advocate of lifting interstate banking restrictions.
Tackling the compact at the state level is hardly the easiest approach. Yet it may be the only way that big Southern banks will be able to move outside the region in the foreseeable future.
Federal legislation would be cleaner, more streamlined. In fact, Congress once again is considering an interstate banking bill.
But the history of federal interstate banking bills is one of great promise followed by a crash landing, as other interest groups piggyback objectionable amendments onto the legislation.
That's what happened in 1991. It happened again in 1992, which was also about the time NationsBank decided to take its case to the states.
``Every time an interstate banking bill has moved in Congress, it has strong support,'' said Mark Leggett, NationsBank's director of government affairs. ``It's only when other bills are added that it fails. That persuaded NationsBank to consider action at the state level.''
North Carolina's exit from the compact was a victory for the state's big banks, although it doesn't go into effect until July 1, 1996.
Nor does it accomplish much in isolation from the other Southern states, because of an unusual feature that gives the compact its teeth.
The heart of the Southeast Compact is the requirement that banks be based in a state belonging to the agreement and operate only in other states belonging to the compact. A bank is considered ``Southern'' if 80 percent or more of its deposits are from the compact states.
The penalty for violating this rule is harsh.
Here's how it works. When the North Carolina barrier falls, banks based in the state can buy a bank outside the region.
But consider First Union and NationsBank. If either made a purchase big enough so that more than 20 percent of its deposits were from outside the South, it would have to sell all of its operations in those other Southern states still belonging to the compact.
That's a deal no bank would make.
The bills in South Carolina and Georgia appear headed for approval, and so far there is no strong opposition.
The South Carolina bill also appears to be moving through the legislative process, although the South Carolina Bankers Association has not taken a position on the bill, said Lloyd Hendricks, the group's executive vice president.
Timothy Koch, a University of South Carolina finance professor, has discussed the impact of full interstate banking with association members.
His basic message: ``It shouldn't have much effect on community banks, and it represents a great opportunity for NationsBank, First Union, Wachovia or Barnett [Banks Inc. in Jacksonville, Fla.].'' The bill in Florida appears to be the only one that hasn't made much progress, because it's still early in that state's legislative session.
There is an outside chance that all of these legislative pushes will be unnecessary.
About two weeks ago, an interstate banking bill was unanimously voted out of the U.S. House financial institutions subcommittee, chaired by Rep. Steve Neal, D-N.C. What was unusual was that no onerous amendments were tagging along.
Meanwhile, Sen. Chris Dodd, D-Conn., announced that he would pose no threat to an interstate banking bill in the Senate. Dodd normally is an advocate for the insurance industry, a traditional banking foe.
That had people like NationsBank lobbyist Leggett feeling upbeat, although still cautious.
The federal bill would not only allow full interstate banking, but let multistate, bank-holding companies merge their separate state branch networks into a single unit. Now, NationsBank must run separate subsidiaries in Washington and each of the states where it operates. NationsBank has estimated this artificial separation costs it $50 million a year.
``This is a bill that saves hundreds of millions, if not billions, of dollars,'' Leggett said, noting that the consulting firm McKinsey & Co. estimates that if the nation's banks merged their separate state branch networks, it would save $1 billion a year.
``That translates into $9 billion or $10 billion in new loans,'' Leggett said. ``It would also create 200,000 new jobs and let consumers make a deposit at any branch where they bank.''
Now, a customer of NationsBank or First Union who lives in Fort Mill, S.C., can't make a deposit at a branch of either bank less than 10 miles away in south Charlotte, N.C. Similarly, a First Union customer in Roanoke can make a withdrawal at one of the bank's North Carolina branches, but the corporation's Carolina bank cannot accept a Virginia customer's deposit.
But the federal bill has yet to run the full gantlet of insurance, securities industry and consumer-interest groups.
``With the slim exception that you can cash your paycheck in any state, consumers will lose on this bill,'' said Susannah Goodman, banking lobbyist with Public Citizens' Congress Watch. ``What we'll try to do is put in consumer safeguards. We will ask that banks be required to show how they will improve the availability of credit and deposit services in order to branch into a new state.''
If language like that gets attached to the bill, chances of passage fall. Some bankers are sure to yank their support.
Wachovia Chairman John Medlin said there is a chance federal legislation will pass this year.
But he said an equally likely scenario was that ``someday, when the entire country has already opened at the state level, Congress in its infinite wisdom will pass an interstate banking bill.''
Staff writer Mag Poff contributed to this story.
by CNB