Federal Review of Intrastate Branching Applications Can Be Reduced

GGD-82-31: Published: Feb 24, 1982. Publicly Released: Feb 24, 1982.

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Federal regulation of intrastate domestic bank branching sets the guidelines for the safety and soundness of any office, branch agency, additional offices, or any branch place of business located in any of the United States or its territories or in the District of Columbia at which deposits are received, checks paid, or money lent. The federal regulators, state governments, and banks are intertwined in the branching process by a mixture of federal and state laws. However, current federal review of new branch applications rarely restricts branch actions, produces little new information of supervisory value and, in the case of state-chartered banks, duplicates state efforts. GAO reviewed the efficiency and effectiveness of the federal processes for regulating intrastate branching.

Federal reviews require information from applicants that may not be needed and that delays branch investment decisions. GAO found that: (1) virtually all state bank applicants were classified by their federal regulators as fundamentally sound, and most of these applicants had previous branching experience; (2) the majority of state bank branching placements are located close to existing bank operations; (3) less than 3 percent of the applications were protested in 1979 and 1980; (4) only 17 percent of the branch applications were denied by federal regulators from 1975 through 1980; (5) reviews of an applicant bank's capacity to branch rely extensively on data and analyses already in the possession of the regulator; and (6) reviews of branch impact on the recipient community are difficult and duplicate state efforts. GAO questioned the policy of the Office of the Comptroller of the Currency which provides for an extensive review of each application. GAO believes that an exception-generated review approach for its conclusions and recommendations should be used. Because federal regulatory agencies treat bank remote facilities as they do staffed branches, banks must receive federal agency approval to establish these facilities even when the state involved does not consider the facilities to be branches. GAO believes that such a review is no longer necessary for state banks and should be further reduced for national banks, because such facilities represent minor actions. This would ensure regulatory consistency.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: The McFadden Act will be reviewed on a much broader basis as part of industry structure debates. The GAO concern will be encompassed by these debates. The Supreme Court has recently exempted certain remote service facilities from interstate banking regulations. This may force changes in the regulations.

    Matter: Congress should amend the McFadden Act and the Federal Deposit Insurance Act to differentiate between staffed branches and remote service facilities.

  2. Status: Closed - Not Implemented

    Comments: A major regulatory reorganization is under study that could encompass this process. Action on this specific recommendation is unlikely in light of a broader study.

    Matter: Congress should amend the Federal Reserve Act and the Federal Deposit Insurance Act to replace the requirement for a broad review of each new branch application with a notification process, wherein applicant banks notify the respective federal agency of their desire to branch. The agency would then respond within a fixed timeframe to this notification with the options of either having no objection, denying the branch, or requiring more data.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The agency has streamlined its application process and issued new instructions. It has set separate guidelines for machines versus brick-and-mortar branches and established calendar day processing timeframes. An accomplishment report is being completed.

    Recommendation: The Comptroller of the Currency should establish an exception-oriented new branch application processing system with explicit calendar-day processing time requirements for routine branch applications. Extensions beyond this timeframe should be exceptions which would necessitate an Office of the Comptroller of the Currency action to initiate.

    Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency

  2. Status: Closed - Implemented

    Comments: The agency has streamlined its application format. It believes that it is not feasible to adopt application formats for each of the 50 states' laws. GAO believes that the new format offers no additional guidance to banks.

    Recommendation: The Comptroller of the Currency should establish structured bank application reporting formats for national banks operating in states requiring the review of branch applications for their community convenience and needs impact, on the basis of the Office of the Comptroller of the Currency interpretation of individual state law requirements.

    Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency

 

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