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Disorderly sale of S&L branches threatens state banking health.

Disorderly Sale Of S&L Branches Threatens State Banking Health

Late in the summer of 1989, the United States Congress finally passed an act designed to reform and resolve the problems in our nation's thrift industry.

The "Financial Institutions Reform Recovery, and Enforcement Act of 1989," became effective August 9, 1989, and as a state regulator for Arkansas state chartered banks, I was hopeful that its passage would greatly assist in solving the financial crises existing in our state's savings and loans.

After a review of the act, the receipt of memorandums and other information concerning how the Resolution Trust Corp., as well as other federal regulators intended to interpret the act in resolving the thrift problems, I became quite concerned.

Due to the stated intentions of the Resolution Trust Corp. to override state branch banking laws in the sale of the insolvent thrifts in Arkansas, I found it necessary to enter into litigation with the Resolution Trust Corp. over the question of whether "FIRREA" did actually contain an override of any state law which might be considered by the federal regulatory authorities to impede the sale of insolvent thrifts.

Disorderly Expansion

My major concern as Arkansas Bank Commissioner is the well being of Arkansas' financial industry, in particular Arkansas state chartered banks, as their primary regulator.

Two years ago, through a consolidated effort of Arkansas bankers, the state legislature passed an act providing for an orderly expansion of Arkansas branch banking locations against a threat of a federal override of similar laws in neighboring states. This orderly method of expansion has assisted banks in this state to expand using a planned future expansion instead of the sudden, overnight expansion that hurt the state's savings and loan industry.

Arkansas banks have not had the problems of our neighboring states. While there have been major bank failures in all of our surrounding states, bank failures which sometimes have numbered as many as one, two or three (at least) a week, Arkansas has only had eight banks fail since 1981 and only one failure since 1985. These numbers are significant in that Arkansas bankers have in the past been the "masters of their own fate;" in other words, the state of Arkansas decided its banking laws, not the federal government.

Misplaced Authority

I took the legal action against the Resolution Trust Corp. because the federal authorities are attempting to read into "FIRREA" authority that is not there. National banks have always been subject to state bank branching laws according to the McFadden Act.

Testimony from the Congressional Record made by various members of Congress during hearings on "FIRREA" address the issue of whether the act was intended to override McFadden and the answer was always in the negative. Now the Resolution Trust Corp. has taken the opposite stance.

Permitting an acquisition of a whole thrift with a branching network all over the state under an "emergency" situation would give larger institutions a four or even a nine year "jump" on the banking industry in Arkansas for branch locations.

Some of our small banks would normally have had these "phase in" years to prepare for the competition of statewide branching; now they may have it thrust upon them overnight and may not be prepared. Therefore, this is of great concern to me because it creates a serious competitive disadvantage to many of the banks under my regulatory authority.

Replacing One Problem With Another

I am as anxious as I believe the entire nation is to resolve the savings and loan problems. Yet, I do not feel that it is best to fix one problem by creating another potential problem. Perhaps the courts will recognize and resolve my very serious concerns in upholding Arkansas state law and will recognize that federal law requires national and state banks to be treated equally in accordance with state branch banking laws.

Bill Ford is the Arkansas Bank Commissioner.
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Author:Ford, William Clay, Jr.
Publication:Arkansas Business
Article Type:column
Date:Jul 2, 1990
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