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Ruling Spurs Joy, Disappointment in Banking Industry

June 11, 1985

Undated (AP) _ The Supreme Court further split the banking industry over the issue of interstate banking by upholding state laws that allow banks within a region to merge while excluding mergers involving banks outside that region.

Supporters of the laws cheered the high court’s ruling Monday, and some banks hat already have proposed such mergers said they would now go forward with their plans.

″We’re absolutely delighted,″ said Ted Rybicki, a spokesman for Sun Banks Inc. of Orlando, Fla., which is planning to merge with Trust Co. of Georgia.

But the ruling was criticized by banks that had wanted to leapfrog regional borders in acquiring other institutions.

″We are deeply disappointed,″ said Citicorp of New York, the nation’s biggest bank holding company. ″The Supreme Court’s decision highlights the need for revision of the decades-old laws that govern banking in the United States today.″

The court upheld on an 8-0 vote laws in Connecticut and Massachusetts that allow banks in their states to merge with other banks in New England, while banning mergers involving banks outside the region.

″I guess I’m delighted - we’ve waited almost two years,″ said Brian J. Woolf, Connecticut’s banking commissioner.

In response to a question at a news conference, Woolf said that one of the aims of the state’s law was to permit Connecticut banks to strengthen their assets in preparation for possible takeover bids by large New York banks.

″I think what we’re doing is allowing our banks in the state to properly position themselves for the future should and if interstate banking should fully come about,″ Woolf said. ″There certainly is a certain amount of protectionism in this legislation.″

Interstate banking generally is prohibited by federal law, but action at the state level in recent years has eroded that barrier.

Under federal law, a state may permit the entry of out-of-state banks if it enacts specific authorizing legislation, and nearly two dozen states have done so. But many of those laws, such as in Connecticut and Massachusetts, limit interstate banking to a few nearby states.

Other states, such as North Dakota, have enacted laws allowing banks from any other state to establish operations. Citicorp, for example, operates in North Dakota.

Because of these disparate state laws, many people in the banking industry are looking to Congress to devise an interstate banking policy for the entire nation.

In the meantime, some of the Southeastern states have adopted regional interstate bank merger laws similar to those in Connecticut and Massachusetts.

And the Supreme Court’s action likely will prompt similar regional pacts elsewhere in the country, said John B. Moore Jr., a banking analyst at the investment firm of Robinson Humphrey Co. in Atlanta.

More immediately, the court’s decision gives the green light to previously announced regional mergers that had been awaiting a ruling. Besides the Sun Banks-Trust merger, Citizens & Southern Georgia Corp. plans to acquire Landmark Banking Corp. of Florida.

The Independent Bankers Association of America, a trade group that represents small- and medium-size banks, remains opposed to interstate banking in general, but applauded the Supreme Court’s ruling nonetheless, said Philip Corwin, the group’s legislative counsel.

″Even though our association doesn’t think it’s a good idea for states to pass these laws, it’s glad to see the Supreme Court reaffirm states’ rights in this area,″ Corwin said.

The ruling was a setback for Bank of New York Co. Inc., which agreed two years ago to acquire Northeast Bancorp Inc. of New Haven, Conn., but which is so far precluded from completing the merger.

Bank of New York’s acquisition requires a change of law either by Connecticut’s legislature or Congress, in addition to approval by the Federal Reserve Board.

Bank of New York and Citicorp wee among the banks challenging the Connecticut and Massachusetts regional banking laws, asserting they were unconstitutional and would shut out the big banks from crossing regional borders.

″Our position was that it discriminates against states that aren’t part of the (regional) compacts,″ said Bank of New York spokesman Scott Peterson.

At Chase Manhattan Corp., another major New York-based bank holding company, executive vice president Robert Douglass said he also was disappointed by the court’s decision. But he said Chase viewed the decision as a short-term setback and remained optimistic that full interstate banking is inevitable.

″Once you decide to open your borders at all, and eliminate the kind of historical protectionism the banks have enjoyed, the principle of breaking down those barriers has begun,″ Douglass said.