under this section if the applicant controls, or after the application is approved would control, 25 percent or more of the total deposits all of the Federally-insured banks and thrifts in the State in which the bank to be acquired is located. The appropriate state bank supervisor may waive this latter restriction on a case-by-case basis, if such waiver does not have the effect of discriminating against out-of-state banks, bank holding companies, or subsidiaries thereof. Other Federal and state antitrust laws are not affected by these provisions, so long as such laws do not discriminate against out-ofstate banks, bank holding companies, or subsidiaries thereof. Definitions For purposes of this section, a bank holding company is "adequately capitalized" if it meets or exceeds all applicable Federal regulatory capital standards. The "home state" of a bank holding company is the state in which the total deposits of its banking subsidiaries were largest on July 1, 1966, or the date on which it became a bank holding company, if later. The "home state" of a state bank is the state in which it was chartered, and the "home state" of a national bank is the state in which its main office is located. Section 3. Conversion of banks to branches Section 3 provides that beginning two years after the date of enactment, an adequately capitalized and adequately managed bank holding company having subsidiary banks located in more than one state may combine these banks into a single bank with interstate branches. The resulting bank may retain and operate as branches the main offices and any branches that, immediately prior to the combination, were being operated by the banks that were combined. The combined bank may also establish, acquire, or operate additional branches at any location where the original banks could have established, acquired or operated branches had they not been combined. All other Federal and state laws governing intrastate branching continue to apply. Community Reinvestment Act Prior to granting approval for a combination, the appropriate Federal banking agency must consider each bank's CRA rating and the comments of the state bank regulator regarding compliance with applicable state CRA requirements. State taxation A proportionate amount of the value of the shares of an out-ofstate bank operating a branch in a "host" state may be subject to a tax imposed by the host state (or political subdivision thereof), based upon an allocation of net income, capital, or net worth, or other factors pursuant to an allocation method adopted by the host state's taxing authorities pursuant to state law. However, the taxing method may not discriminate against out-of-state banks, bank holding companies, or subsidiaries thereof. Activities of branches An interstate branch of a state bank established under this section may not engage in activities in the host state that are not permissible for a host state bank. Permissible activities of a branch of a national bank, wherever located, are governed by Federal law. Applicable law Any interstate branch of a national bank established under this section will be subject to host state laws, including those that govern consumer protection, fair lending, and community reinvestment, as if it were a branch of a national bank having its main office in that state. Any interstate branch of a state bank established under this section will be subject to host state laws, including consumer protection, fair lending, and community reinvestment provisions, as if it were a branch of a host state bank. A host state may require any bank having its main office in another state that wishes to establish a branch within the host state to comply with filing requirements that do not have a discriminatory effect, and that are similar to filing requirements imposed generally on corporations incorporated in other states and seeking to engage in business in the host state. Opt-out A state may opt-out of interstate branching through interstate bank combinations authorized under this section by passing a law (after the date of enactment of this bill), that applies to all out-ofstate banks, and that expressly prohibits interstate combinations. A bank holding company located in a state that has opted-out may not take advantage of the interstate combination authority. There is no time limit on when a state may act, but combinations that were approved prior to the later of the effective date or date of enactment of the state "opt-out" law are grandfathered. Opt-in A state may chose to permit interstate combination prior to the expiration of the two year period beginning on the date of enactment. The state law must apply equally to all out-of-state banks. This "host state" may only impose conditions on the branch of the combined bank, if the conditions do not discriminate against outof-state institutions (other than on the basis of whether the home state of the out-of-state institution provides reciprocal rights for institutions located in the host state). The conditions may not be inconsistent with any Federal law, and may not apply or require performance beyond the 2 year period commencing on the date of enactment of the Act. State flexibility retained A state that elects to opt-out of interstate bank combinations may elect, at a later date, to permit such transactions. Likewise, a state that "opts in," may elect at a later date to prohibit such transactions. Preservation of certain laws Nothing in the Interstate Banking and Branching Act affects: (i) Federal or state antitrust laws that do not have the effect of discriminating against out-of-state banks, out-of-state bank holding companies, or subsidiaries thereof; and (ii) section 5197 of the Revised Statutes or section 27 of the Federal Deposit Insurance Act. Section 4. Amendments to the Federal Deposit Insurance Act Coordination of examination authority A state bank supervisor of a host state may examine a branch of an out-of-state state-chartered bank for the purpose of determining compliance with host state laws including those governing intrastate banking, taxation, community reinvestment, fair lending, consumer protection, and permissible activities, and to ensure that the activities of the branch are not conducted in an unsafe manner. A host state banking supervisor may take enforcement actions against a branch of an out-of-state state-chartered bank as if such branch was a bank chartered by the host state. State bank supervisors are authorized to enter into cooperative agreements to facilitate supervision of state chartered banks. If the appropriate Federal banking agency determines that the states have failed to reach a cooperative agreement that adequately protects the deposit insurance fund, the agency shall not defer to state examinations of branches of out-of-state state-chartered banks. Bank Consolidation Act The Bank Consolidation Act is amended to permit interstate consolidations and mergers with a national bank, if the out-of-state bank is located in a state in which a bank involved in an interstate combination authorized by new section 3(h) of the Bank Holding Company Act is located. Section 5. Establishment of Interstate Branches by Banks This section amends the Federal Deposit Insurance Act and the National Bank Act to provide independent authority for the Federal regulatory agencies to approve interstate branching by state and national banks, if the host state elects to permit such branching. Under this section, the host state may permit out-of-state banks to acquire or establish branches in that state, by passing a statute authorizing such branching on a basis that does not have the effect of discriminating against out-of-state banks, bank holding companies, or subsidiaries thereof. The out-of-state bank must be adequately capitalized and adequately managed. An interstate branch established under this authority must be operated in accordance with the procedures, restrictions and requirements imposed on branches established pursuant to interstate combinations under new section 3(h) of the Bank Holding Company Act. Section 6. Community Development Act Evaluations If an insured institution maintains branches in two or more states, the appropriate Federal banking agency must prepare a written evaluation of the entire institution's CRA record, and for each state in which a branch is located, a separate written evaluation of the institution's record in that state. If an institution has 2 or more interstate branches in a single multi-state metropolitan area, the agency must prepare a separate written evaluation of the institution's record within that metropolitan area and the state-bystate evaluation should be adjusted accordingly. The written CRA evaluation must present information separately for each metropolitan area in which the institution maintains 1 or more branch offices and separately for the remainder of the nonmetropolitan area of the state, if the institution has at least 1 branch in such nonmetropolitan area. Section 7. Flexibility in Choosing Boards of Directors Under current law, two-thirds of a national bank's board of directors must reside in the same state, Territory, or District in which the bank is located, or within 100 miles of the bank's office. The bill changes the current two-thirds requirement to a simple majority. REGULATORY IMPACT STATEMENT In compliance with paragraph 11(b) of Rule XXVI of the Standing Rules of the Senate, the Committee makes the following statement regarding the regulatory impact of the bill. This bill would significantly relax restrictions on both interstate banking and branching. One year after enactment, subject to certain conditions, it would permit adequately capitalized and managed bank holding companies to acquire an existing bank in any other state. Two years after enactment (unless a state elects earlier) and subject to certain conditions the bill would allow bank holding companies with bank subsidiaries located in more than one state to combine the subsidiaries into interstate banks. States would be permitted to opt out of the interstate combination provisions. Also de novo interstate branching would be permitted only if a state law expressly allowed for such branching. These provisions would result in greater competition within the banking industry with greater efficiency and increased geographic and industry diversification of bank loans. Its interstate banking provisions would replace the current hodgepodge of laws and regulations that permit interstate banking, but in an inefficient and costly manner. Its interstate branching provisions would permit banks to eliminate the need for multiple charters and boards of directors and reduce the burden of complying with government regulations by decreasing the number of regulatory reports that the bank must file. The provisions of the bill then would decrease and not increase the regulatory burden imposed by the Government. COST OF LEGISLATION The Committee has requested a cost estimate of this legislation under the provisions of Section 403 of the Congressional Budget Act of 1974. The cost estimate of the Congressional Budget Office appears below. U.S. CONGRESS, Hon. DONALD W. RIEGLE, Jr., DEAR MR. CHAIRMAN: The Congressional Budget Office has reviewed the Interstate Banking and Branching Act of 1994, as ordered reported by the Senate Committee on Banking, Housing and Urban Affairs on February 23, 1994. CBO estimates that the increased efficiencies in the banking industry that would probably result from interstate banking would lead to slightly lower federal spending for deposit insurance activities. Because such spending is related to maintaining the deposit insurance commitment, which is exempt from pay-as-you-go calculations under the Budget Enforcement Act of 1990, pay-as-you-go procedures would not apply to the bill. The bill would remove some current restrictions on both interstate banking and branching. One year following enactment, the bill would allow any adequately capitalized and managed bank or bank holding company to acquire an existing bank in another state. Two years following enactment, a bank or bank holding company would be permitted to combine its bank subsidiaries in various states into a single bank with branches serving the same states. A state, however, would have the authority to permit such combinations earlier or to prohibit all out-of-state banks from turning banks into branches in that state. In addition, a state could place some limits on how long a branch must be in existence before it can be acquired and could modify the limit on the percentage of deposits one bank can control. The relevant federal regulatory agencies-the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC)-would be authorized to approve or disapprove such acquisitions and combinations. Interstate banking already is allowed to some extent: 34 states permit nationwide banking (although 21 of these have reciprocity requirements) and 15 states allow regional banking. The bill likely would accelerate the current pace of liberalizing state-by-state banking restrictions and enhance the trend of consolidating the banking industry. The potential impact of the bill on the federal budget would arise from the effect on the Bank Insurance Fund's (BIF's) costs of resolving failed banks and from the changes in the administrative costs of the regulatory agencies as a result of the banking industry's new structures. ČBO expects that these trends would produce the following results: Impact on BIF More diverse loan portfolios made possible by an increased geographic reach would decrease banks' susceptibility to localized incidents of distress or crisis, thereby helping them avoid failures that would result in BIF losses. Greater competition within the industry would further encourage inefficient banks to reduce costs or to merge with stronger institu |