State regulation of banks in an era of deregulation Page: 16
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holding company system through section 4 of the
BHCA. The specific language relied on by the Board
prohibits a bank holding company from "acquiring direct
or indirect ownership or control of any voting
shares of any company which is not a bank.... "According
to the Board, "by encompassing indirect as
well as direct ownership interests, [section 4] of the
Act prohibits a holding company bank as well as the
holding company itself from owning more than 5 percent
of the voting shares of any company engaged in
impermissible nonbank activities.... "12 The position
of the board in this regard is somewhat anomalous: it
admits to not having power over "improper activities"
when conducted in the bank, but asserts control over
the same activities when they are conducted in a bank
subsidiary. Nevertheless, in a recent decision, the
D.C. Circuit Court of Appeals agreed with the board,
ruling that the BHCA gives the board authority to restrict
the activities of subsidiaries of national banks
that are owned by a bank holding company.13
No similar disputes exist among state regulators.
This lack of conflict cannot be attributed, however, to
the enlightened attitude of state regulators. It is,
rather, a product of restrictive laws. Until recently,
state and federal laws prohibited interstate banking
and limited the activities of banks. These laws confined
banks to one state, thereby escaping conflicts
among regulators in different states; the laws also
created a separation between the business of banking
and that of other regulated entities, thereby avoiding
jurisdictional disputes among regulators in the same
state. Deregulation has removed many of these former
restrictions. Based on the federal experience,
one cannot rule out the possibility of conflicts among
state regulators in the future.
Jurisdictional Overlap:
Efforts at Coordination
Congress established the Federal Financial Institutions
Examination Council (Council) in 1979 to
"promote consistency in federal examinations and
progressive and vigilant supervision."14 The fivemember
council consists of the Comptroller of the
Currency, the chairman of the FDIC, a member of
the Board of Governors of the Federal Reserve System
appointed by the chairman of the Board, the
chairman of the Federal Home Loan Bank Board,
and the chairman of the National Credit Union Administration.
States are represented as nonvoting
members of an advisory council.
To implement the general statutory mandate,
Congress set forth three specific goals for the council:
(1) to prescribe uniform principles, standards, and report
forms for federal examinations of financial institutions
by the five regulators represented on the
council, (2) to develop uniform reporting systems for
federally supervised financial institutions, their holding
companies and their nonfinancial subsidiaries,
and (3) to conduct schools for examiners employed by
the five agencies.
These goals have proved elusive. For example, in
1985, the council approved a Uniform Report of Examination
for commercial banks. Only the Federal
Reserve implemented the new report, and in 1987
the council rescinded its earlier action approving the
uniform report.15 Nine years after it was created, the
council is still unable to agree on a uniform report of
examination. Although the council conducts a school
for examiners pursuant to goal (3), the agencies involved
view the council's training program as peripheral
to their own individual bank examiner schools.
Consequently, the council's schools have contributed
little toward uniformity in the training of bank examiners.
It is evident that the council has made scant
progress toward realizing the goals of its empowering
legislation. Cooperative efforts among state and federal
regulators have fared better. The council has approved
a General Policy for Sharing Confidential
Information with State Banking and Thrift Regulatory
Agencies.16
Although they are novices at the supervision and
examination of banks across state lines, many state
bank regulators have made admirable progress in
creating uniformity and coordination of bank examinations
with their counterparts in other states. No
statutory organization, analogous to the federal
council, exists to mandate uniformity in state bank
regulatory practices. Nevertheless, the Conference
of State Bank Supervisors (CSBS) has sometimes
played a similar role in providing support for state efforts
toward uniformity and cooperation.
Formed in 1902, the CSBS is a professional organization
governed by a 12-member board composed
of state bank supervisors and an advisory
council made up of state-chartered bankers. The organization
provides training (introductory through
advanced) for state bank examiners and seminars for
bank department supervisory personnel and attorneys
throughout the nation. In 1987, CSBS conducted
25 schools and seminars for over one
thousand students. The training programs have
helped to create uniform standards in state bank examinations
across the country.
The CSBS also conducts an accreditation program
for state banking departments. Accreditation is
a rigorous process, beginning with a self-evaluation
conducted according to a set of criteria developed by
CSBS, proceeding to an on-site evaluation and report
thereof under the direction of the CSBS Performance
Standards Committee, and a review by the organization's
Audit Committee. Thirteen state
banking departments have achieved accreditation,
and others have begun the process.
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United States. Advisory Commission on Intergovernmental Relations. State regulation of banks in an era of deregulation, book, September 1988; Washington, D.C.. (https://digital.library.unt.edu/ark:/67531/metadc1445/m1/26/: accessed April 19, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.