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Interstate banking in the US was historically restricted by state and federal laws, but these have gradually eased over time. The Riegle-Neal Branch and Interstate Banking Efficiency Act of 1994 allowed banks to expand nationally and take over other banks in any state, as well as open branches in any state by acquiring another bank.
Interstate banking is where a bank based in a US state conducts business in one or more states. Historically, interstate banking was extremely restricted by law. These restrictions have gradually eased over time.
Originally, state and federal laws made it virtually impossible for banks to operate in more than one state. At the federal level, this arose from disputes over where the Bank of the United States, which handled the national government’s finances, should be located. At the state level, laws are often designed to protect local banks from competition from major banks in larger or more prominent states. In 1956, the US Congress tightened the rules with the Banking Corporations Act, which effectively prohibited any bank from taking over a bank in another state.
The first serious talk about loosening restrictions came in the early 1980s. At this time, there were 15,000 banks in the United States, more than the rest of the world combined. Federal proposals to allow banks to operate outside their home states were first proposed under President Jimmy Carter, but fell short, despite possibly conforming to the economic policies of the president’s subsequent administration. Ronald Reagan.
Instead, the first major changes occurred in the mid-1980s on a state-by-state basis. The governments of the six New England states agreed to a reciprocal relaxation, meaning that any New England-based bank could operate in any New England state. Similar regional agreements were reached by the southeastern, midwestern and western states of the country.
As these regional agreements led to the expansion of banks, individual states began to allow banks to merge with other banks anywhere in the country. Generally, this came about through new state laws that contained a date after which the mergers became legal. This date was often called the “National Trigger.”
Finally, interstate banking had become so common that national politicians agreed to change the federal law. The Riegle-Neal Branch and Interstate Banking Efficiency Act of 1994 allowed banks to expand nationally. This means that a bank can take over another bank in any state, regardless of prior state laws. The law also allowed for interstate branching, in which banks can open branches in any state. However, banks cannot simply establish branches nationwide, but must take over another bank in each state where they wish to have branches.
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