January 11, 1996

Client Memo: Financial Institutions Practice

Arnold & Porter Article
With full interstate branching by commercial banks more than a year away, we thought it might be useful to advise you of a development involving a little known provision of the National Bank Act that currently would allow a national bank to establish an interstate branch network by merging with a federal savings bank across state lines. The Office of the Comptroller of the Currency ("OCC") has recently approved a merger between a national bank and a federal savings bank with interstate branches pursuant to this section.
Section 215c of the National Bank Act provides that a national bank may merge or consolidate with any insured depository institution, subject to the requirements of the national Bank Act and the Oakar Amendment. This provision (along with a parallel provision in Section 10(s) of the Home Owners' Loan Act) was enacted in 1991 specifically to facilitate mergers between national banks and federal savings associations -- many of which historically have had, and continue to maintain, interstate branch networks. For that apparent reason, Section 215c does not by its terms impose any geographical restrictions on merger or consolidation transactions between national banks and other insured depository institutions independent of the Oakar Amendment (which subject any transaction to the Douglas Amendment to the Bank Holding Company Act), and the McFadden Act.
Recognizing this, the OCC recently concluded that Section 215c grants authority to a national bank to merge with a federal savings bank with an interstate branch network. This grant of authority is independent of the provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal Act"). In other words, the provisions of the Riegle-Neal Act relating to interstate mergers between commercial banks do not apply to, or affect the provisions of, Section 215c relating to mergers between national banks and federal savings associations.
This means that a national bank currently may create an interstate branch network by merging or consolidating with a federal savings bank with a home office or branch office in a different state, regardless of whether the state has enacted an interstate branching law, or opted out of interstate branching. Following such merger or consolidation, the national bank may maintain the interstate branch or branches of the acquired association under long-standing OCC interpretations of the McFadden Act relating to the establishment and operation of national bank branches.
Section 215c transactions are not without risk. State regulators may take a different view and indeed in the case recently approved by the OCC, one of the two state bank regulators interested in the transaction raised an objection to it, although such objection was wholly without merit.
In short, we believe that these transactions may be a useful tool for national banking associations seeking to develop an interstate branching network. We have been involved in structuring these transactions for several national bank clients. If you have any questions about Section 215c transactions, or wish to obtain more information, please contact Pat Doyle at (202) 942-5949, Mike Mierzewski at (202) 942-5995 or Beth DeSimone at (202) 942-5445.
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