ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, July 7, 1996 TAG: 9607050119
SECTION: BUSINESS PAGE: 1 EDITION: METRO
COLUMN: BANKING
SOURCE: MAG POFF
Virginia's former law governing bank directors - and similar statutes all over the country - likely stemmed from the rough and ready days of "wildcat banking."
That was from 1836 to 1863 when banks, not the government, issued paper cash and when the country lacked a central bank.
Eric Compton, in his book "Principles of Banking," said some unscrupulous banks took prospectors' gold in exchange for their own notes. But when depositors went to redeem the notes, they found the bank had departed for a remote location frequented only by wildcats.
So, for a time wildcat banking became part of the nation's language.
The cure for such an outrage? It was a Virginia law that stated a majority of the directors of a state-chartered bank had to live in Virginia.
But now single-state banking has gone the way of bank-issued cash and most of the industry's wildcats. Starting this month, Virginia's new law says state-chartered banks can name directors from anywhere. There are no more rules about their residence.
Virginia is the first state in the country to lift the residential rules, said Michael Toalson, senior vice president for government relations at the Virginia Bankers Association.
Banks with national charters, such as Central Fidelity Bank, First Union National Bank and NationsBank, operate under different rules. The Riegle-Neal Interstate Branching and Banking Act changed their residency requirement from a two-thirds minimum to just 50 percent of board members having to live within 100 miles of the bank.
Bankers who pushed for the Virginia law - passed by this year's General Assembly - cast the change in terms of economic development.
Toalson said the law is designed to attract bank headquarters to Virginia. As banks continue to expand from one-state institutions to regional and national markets, he said, they will locate their headquarters where the laws are the most flexible.
In like manner, the law is expected to retain as many headquarters as possible as Virginia banks also reach beyond their borders, particularly institutions serving the Washington, metropolitan area.
"We want to create the most positive banking environment we can," Toalson said. The law, he said, "was the next logical step in an interstate banking environment." The old law, he said, was "constraining."
The law may make it easier for Virginia banks to recruit board members, according to Mathew H. Street, associate general counsel at the American Bankers Association.
Serving as a bank director is difficult work because "you have to ask a lot of tough questions and be sure to take every reasonable step to make sure the company is managed correctly," Street said.
And then there are the lawsuits filed against directors by unhappy stockholders.
But Street said liability is less of a risk today because serving as a director is "a much less daunting prospect in a healthy and vibrant industry."
Toalson declined to identify which banks are interested in the new law, but he said several larger banks operating in the Washington area might benefit.
Two such banks are Crestar and Signet, both state chartered. Both said they have no plans at this time to alter their boards in any manner.
Cheryl Jenkins, spokeswoman for Crestar, said it has a 16-member board with two from the District of Columbia and the remaining 14 from Virginia.
Mary Helter, speaking for Signet, said 10 people on its 14-member board are from Virginia.
Much smaller banks may be the first to profit from the new Virginia law.
Take the case of First Bank & Trust Co. of Abingdon, which has an office in Johnson City, Tenn., and is building a branch on Volunteer Highway in Bristol, Tenn.
Long range, said Vice President Leton Harding Jr., the bank would like to expand in the vicinity of Boone, N.C.
The law, Harding said, "is advantageous to us" because First Bank & Trust would like to add directors from the Boone and Tri-Cities areas. That's really all one market with the Abingdon area because people cross boundaries to live, work and shop - "cross-pollination," Harding called it.
The bank currently has seven board members, all from Virginia, despite the fact that Tennessee accounts for 20 percent of its loans and deposits.
First Bank & Trust would profit from having people on its board from the entire market area, Harding said, because "the line gets very blurred" along Virginia's borders.
New law is
positive step
for Virginia
LENGTH: Medium: 94 linesby CNB