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Banking & Finance
AN EIGHTH DISTRICT PERSPECTIVE
SUMMER 1986

Interstate Banking In the Eighth District —
An Update
Eight other states have established regional interstate
banking zones with “trigger dates,” after which full
nationwide banking will be allowed. Nineteen states and the
District of Columbia have adopted regional banking pacts
with no provisions for full nationwide banking. The six other
states have restricted interstate banking to the entry of limitedservice facilities or to the acquisition of only failing banks
by out-of-state institutions. Of the remaining 11 states with
no interstate banking provisions, many currently are
considering some form of either national or regional
interstate banking legislation.
While it is possible to categorize the states’ legislation
according to the type of interstate banking allowed, this broad
aggregation can obscure the diversity of the existing
legislation. In most cases, each state’s laws provide for
slightly different geographical regions. For example, the New
Jersey interstate banking region includes Missouri, but
Missouri’s region is limited to contiguous states and therefore
does not include New Jersey.
Numerous other provisions illustrate the uniqueness of
Interstate Banking Pacts: A National
state laws. Some states, for example, allow banks to choose
not to participate in interstate banking either as a buy-out
Overview
target or as a purchaser. Other states have established that
only banks in existence for a specified period of time can
To illustrate the diversity of legislation pertaining to
interstate banking, consider the following breakdown. Six
be acquired, while other states limit the size of a banking
organization to a percentage of the state’s banking deposits.
of the 39 states that have passed laws have opted for full
Another difference is the means by which out-of-state
nationwide entry, which allows banks from any state to
institutions can enter a state; in most cases, entry is allowed
acquire banks within that state. Of these six, three have
only by acquiring an existing bank, while in other cases de
unlimited national banking, while the other three call for
reciprocal national banking. Reciprocal interstate banking
novo entry is permitted. De novo entry is the act of chartering
a new bank in a state. A major reason for
provisions hold that for an interstate
acquisition to occur, both states must have
the diversity of state laws is the absence of
legislation permitting banks from the other
national legislation that could standardize the
state to acquire banks in the state.
process of expanding the geographic
boundaries in the banking industry. Although
in 1985 the House Banking Committee
THE
FEDERAL
approved a bill to permit a five-year phaseRESERVE
'The Eighth Federal Reserve District includes all of Arkansas
RANK of
in period of nationwide banking as of 1990,
ST. IXHIS
and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri
legislative interest in the bill has dimmed and
and Tennessee. This article refers to all seven of these states.
further action is not expected.

One of the most important developments in the banking
industry has been the rapid spread of interstate banking
legislation across the United States. According to the
American Banker (June 20 and 24, 1986), 39 states and the
District of Columbia have approved some form of interstate
banking. Despite this widespread Acceptance of some form
of interstate banking, the legislation that has emerged
represents a patchwork of laws that differ substantially across
states.
While many analysts acknowledge that full nationwide
banking eventually will be adopted, the most common means
of adopting interstate banking has been through the
development of regional banking pacts. The Eighth District
experience has followed this trend.1 Legislatures in all
District states, with the exception of Arkansas, have approved
regional reciprocal banking pacts. This article examines
the interstate banking legislation that exists in the Eighth
District.




FEDERAL RESERVE BANK

Interstate Banking Pacts: An Eighth
District Progress Report
Eighth District state legislatures have pursued their
individual courses to interstate banking and, as such, have
put some District states into most of the categories described
earlier. To date, interstate banking in the District has taken
the forms detailed below.
Arkansas
An interstate banking bill creating a region of 11
Southeastern states plus the District of Columbia was
proposed in the legislature, but was not advanced out of the
banking committee. The legislature is scheduled to reconvene
in 1987 and is expected to reconsider interstate banking
legislation at that time.
Illinois
As of July 1986, institutions from the five contiguous states
plus Michigan may enter Illinois by acquiring banks that
have been in existence a minimum of 10 years. Acquiring
institutions both for interstate and intrastate mergers must
have minimum capital-to-asset ratios of 7 percent both before
and after any proposed merger. As of mid-July 1986, very
little interstate merger activity had been reported.
Currently, all contiguous states, with the exception of Iowa,
have interstate banking legislation. Institutions have until
September 1986 to opt out of interstate banking, but none
have thus far. Nonparticipation would prevent them from
being purchased by or from purchasing out-of-state
institutions. The Illinois law has no trigger-date provision
for allowing nationwide interstate acquisitions.
Indiana
As of January 1986, banks from contiguous states are
permitted to acquire Indiana banks that have been in existence
for five years or more. The legislation, however, forbids any
institution from owning more than 11 percent of the state’s
commercial banking deposits. This cap will rise to 12 percent
after July 1987. Banks also were given the choice of opting
out of interstate banking and approximately 15 banks have
done so.
Between July 1985 and June 1986, over 130 bank
acquisitions have been announced, of which 39 were
interstate acquisition announcements. Together, these
announcements involve over one-quarter of all banks in the
state. The large number of acquisitions is attributable to both
the interstate banking legislation and to the legislation which

SUMMER 1986

allows multi-bank holding companies. The largest banking
organization in the state is now owned by a bank holding
company based in Ohio. It also is constrained from further
acquisitions by the 11 percent deposit cap and other large
institutions are approaching this limit. There are no
nationwide trigger-date provisions. All four contiguous states
have adopted interstate laws.
Kentucky
Kentucky was the first state in the District to adopt regional
interstate banking when it did so in July 1984. The state’s
trigger-date provision to allow nationwide acquisitions on
a reciprocal basis took effect July 13, 1986. Based on this
change, the acquisition of the state’s largest bank holding
company by a Pittsburgh-based institution already has been
announced. Numerous interstate acquisitions based on the
regional interstate banking legislation already have been
consummated. De novo entry is not allowed and acquired
banks must be at least five years old.
Missouri
Missouri’s regional reciprocal interstate law with
contiguous states took effect August 13, 1986. The state’s
law permits de novo entry, which would allow out-of-state
banks to charter new banks in Missouri rather than forcing
them to purchase existing ones. The existing legislation has
no trigger date, but this option will be discussed in the
upcoming legislative session. Only three of the eight
contiguous states have adopted interstate banking laws. To
date, only three interstate mergers have been announced.
Mississippi
The state’s regional reciprocal law takes effect July 1, 1988,
for the four contiguous states. The law stipulates that an
acquired bank must have been in existence a minimum of
five years. As of July 1, 1990, the region expands to include
most Southeast states ranging from Missouri to Florida. To
date, no interstate acquisitions have been announced.
Tennessee
The Tennessee reciprocal law, which took effect July 1,
1985, includes a region of eight contiguous states plus five
other Southeastern states. Acquired banks must have been
in existence a minimum of five years. Thus far, only four
interstate mergers and acquisitions involving Tennessee banks
have been announced.
—Kenneth C. Carraro

Banking & Finance—An Eighth District Perspective is a quarterly summary of banking & finance conditions in the area served
by the Federal Reserve Bank of St. Louis. Single subscriptions are available free of charge by writing: Research and Public
Information Department, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. Views expressed are
not necessarily official positions of the Federal Reserve System.
2




FEDERAL RESERVE BANK OF ST. LOUIS

SUMMER 1986

EIGHTH DISTRICT BANKING DATA

LARGE WEEKLY REPORTING BANKS1
R a te s o f C h a n g e

Level
11/1986

($ millions)

Current
Quarter

Current
Year

1/198611/1986

11/198511/1986

Same Periods
Previous Year
1/198511/1985

11/198411/1985

Selected Assets & Liabilities
T otal Loans & Leases
C o m m e rcia l Loans
C o n s u m e r Loans
Real E state Loans
Loans to F in a n cia l In s titu tio n s
A ll O th e r Loans

$ 16,335
5,5 9 3
3,860
3,576
881
2,424

T otal S e cu ritie s
U.S. T re a s u ry & A g e n c y S e cu ritie s
O th e r S e c u ritie s
T otal D eposits
N o n -T ra n sa ctio n B a la n ce s
MM DAs
$ 1 0 0 ,0 0 0 C D s
D e m a n d D ep o sits
O th e r T ra n s a c tio n B a la n c e s 2

7 .9 %
12.3
12.4
0.6
50.1
-8 .6

8 .1 %
2.6
18.7
6.6
-5 .3
14.3

-9 .4

6 .7 %
2.5
28.5
2.2
-3 5 .9
21.7

1 1 .9 %
7.6
18.4
9.4
-1 1 .0
34.3

3,743
2,110
1,632

-0 .6
-1 9 .2

-1 .8
-9 .7
10.8

21.0
27.9
10.9

2.3
-2 .9
11.7

19,368
11,932
2 ,547
3 ,687
5,6 2 8
1,808

10.2
5.8
18.2
-3 .3
18.6
18.3

4.5
1.7
19.9
-4 .4
6.9
18.1

2.7
2.3
-5 .1
-3 .5
1.3
10.6

6.2
9.2
10.1
8.6
-1 .2
11.7

SMALL WEEKLY REPORTING BANKS3
Rates of Change
Level
11/1986

($ millions)

Current
Quarter

Current
Year

1/198611/1986

11/198511/1986

Same Periods
Previous Year
1/198511/1985

11/198411/1985

Selected Assets & Liabilities
T otal Loans & Leases
C o m m e rc ia l Loans
C o n s u m e r Loans
R eal E state Loans
A ll O th e r Loans
U .S. T re a s u ry & A g e n c y S e c u ritie s
O th e r S e c u ritie s
T otal D ep o sits

$ 5,280
1,575
1,051
2,185
469

18.6%
18.8
21.2
22.6
-3 .6

6 .5 %
0.9
3.3
10.0
19.4

9 .5 %
0.5
4.6
15.9
32.0

9 .9 %
3.6
13.3
16.3
-1 .6

1,968

3.6

-1 .0

5.3

3.5

748

3.1

10.8

-5 .7

-1 .2

8,042

20.8

2.2

9.9

7.2

1 A sample of commercial banks with total assets greater than $750 million. Historical data have been revised to incorporate adjustment factors
that offset the cumulative effects of mergers and other changes involving weekly reporting banks during 1985. These adjustment factors, which are
computed each year, are used to construct a consistent time series for which year-to-year growth rates can be calculated. Adjustment factors are available
upon request from the Statistics Section of the Research and Public Information Department. Rates of change are compounded annual rates.
2 Includes NOW , Super NOW, ATS and accounts permitting telephone or pre-authorized transfers.
3 A sample of commercial banks with total assets less than $300 million as of January 1984.




3

EIGHTH DISTRICT BANKING DATA
Bank Performance Ratios
RATIOS

1/1986

1/1985

1/1984

7 8 .2 8 %
58.23

7 9 .9 3 %
5 9.38

7 7 .0 8 %
58.42

Loans to Deposits
Larg e B a n k s 4
S m all B a n k s 5

Loan Loss Reserves to Total Loans
Larg e B an ks
S m all B an ks

1.47
1.30

1.49
1.15

1.40
1.08

4.23
5.57

3.96
5.30

4.8 4
5.00

0 .1 3
0.14

0.11
0.08

Delinquent Loans to Total Loans
Larg e B an ks
S m a ll B an ks

Net Loan Losses to Total Loans
Larg e B an ks
S m all B an ks

0.16
0.16

EIGHTH DISTRICT INTEREST RATES6
Year Ago
June 1986_______ May 1986______ April 1986______June 1985
NOWs
MMDAs
T im e C D S
92 — 182 days
1 — 2 1/2 ye a rs
2 V2 ye a rs a nd o ve r

5 .3 6 %
6.09

5 .3 6 %
6.16

5 .4 0 %
6.21

6 .0 7 %
6.89

6.4 7
7.14
7.43

6.50
7.22
7.54

6.5 4
7.18
7.52

7.45
8.30
8.66

All Eighth District banks with total assets greater than $750 million. Ratios are derived from Call Reports.
All Eighth District banks with total assets less than $300 million.
Average interest rates paid on new deposits by a sample of Eighth District commercial banks.





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102