Restrictions on Interstate Banking with regard to Branching and Bank Holding Companies
This paper will discuss the various restrictions imposed by federal law on interstate banking with regard to branching and bank holding companies. The first part of the paper will examine the federal laws concerning branching activities by banks and how they are affected by the McFadden Act. The second part of the paper will look at the regulation of bank holding companies with regard to interstate expansion by the Douglas Amendment to the Bank Holding Company Act. The third part of the paper will discuss some of the antitrust ramifications of interstate branching and expansion by bank and bank holding companies. The basic aim of this paper is to show how federal banking law concerning interstate branching and expansion has failed to keep up with innovations in the industry and how it has inadequately responded to the recent crisis of bank and savings institution failures.
A Branch bank is not a separate legal entity from its parent bank, having no separate board of directors or capital structure. However, branch banks are separate and distinct business entities, though subject to the supervision of the parent bank. A parent bank is not permitted to treat its branch as a separate, subordinate corporation.
State law is supreme on the subject of branching. From the time the National Currency Act was passed in 1863 until the passage of the McFadden Act in 1927, national banks were not authorized by federal law to create branch offices. State banks, on the other hand, were governed by the laws of the states in which they operated, many of which authorized the creation of branch offices. In response, some national banks attempted to branch, citing their status as federal instrumentalities. In 1924, the U.S. Supreme Court upheld the supremacy of state law on branching in a case where a national bank sought to create a branch in cont...