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Summary of Interstate Branching Legislation - Wisconsin Act 217

April 14, 2006

Reciprocal interstate branch banking legislation was passed unanimously by Wisconsin’s legislators and was signed into law recently by Governor Doyle. Wisconsin’s new interstate branch banking law became effective on April 11, 2006. We wanted to alert you to what your bank’s rights and privileges are under this new law. There are two aspects to Wisconsin’s new branching law: one relates purely to branching ability, and the second relates to starting new bank charters.

  1. Interstate Branching.

    Under Wisconsin’s new reciprocal interstate branching law, Wisconsin state banks and national banks located in Wisconsin may apply to open an interstate branch in Illinois, Michigan, Indiana, North Dakota, or in approximately fifteen other states which have adopted reciprocal interstate branching laws. Minnesota and Iowa are two contiguous states with Wisconsin which have not adopted reciprocal branching. Attached is a list of the states which have adopted reciprocal interstate branching. To open a branch in a reciprocal state, a Wisconsin bank would have to file an interstate branch application with its appropriate federal regulator, and also with the "host" state regulator (e.g., the Michigan or Illinois Banking Departments.)

    Similarly, state banks or national banks located in states which have adopted branching legislation reciprocal with Wisconsin will now be able to apply to open branches in Wisconsin. In order to open a branch in this state, Wisconsin DFI will have to approve an application from the out-of-state bank, including first making a determination that the laws of that state would permit a Wisconsin bank to open a branch in that state.

    Wisconsin’s new branching law applies only to Wisconsin state chartered commercial banks and national banks; it does not apply to Wisconsin state savings banks or savings and loan associations. Federal thrifts already have unlimited interstate branching authority under federal law, and state chartered thrifts currently have the ability to branch in a group of regional Midwestern states.

  2. Establishing or acquiring a de novo bank.

    Previously, Wisconsin law prohibited an out-of-state bank holding company from organizing a new Wisconsin bank to be owned by the holding company, and also prohibited an out-of-state company from acquiring a Wisconsin bank until the bank was at least five years old. This "five year" aging rule also was present in a number of states following the enactment of the Riegle-Neal Interstate Banking Act in 1994.

    At the same time as Wisconsin’s laws prohibited out-of-state bank holding companies from establishing new banking organizations in Wisconsin, Wisconsin banking organizations similarly were barred from taking these steps in many other states.

    The "five year" age provision in Wisconsin’s interstate banking law has now been repealed. Therefore, a banking organization in Wisconsin, for example, that wishes to expand into Illinois, not by branching but instead by chartering and capitalizing a de novo Illinois state bank with a local board of directors, may now take this action, assuming that the Illinois Banking Department determines that an Illinois banking company has equal rights to organize or acquire a new bank in Wisconsin.

    The new law does not distinguish between organizing de novo or acquiring an already existing bank, so a Wisconsin banking organization could proceed to acquire, for example, a recently formed two-year-old bank in Michigan. The key here is that the target bank no longer must be at least five years old before it can be acquired by an out-of-state bank holding company.

  3. Other matters.

    The new law requires the Division of Banking of Wisconsin DFI to periodically publish a list of the states that DFI has determined to have "reciprocal" branching rights with Wisconsin. If a State you are interested in is not included on the periodic listing, you may request the Division of Banking to make such a reciprocity determination. The DFI list of reciprocal states will be available on its website.

    The law requires an out-of-state bank to obtain approval and/or notify Wisconsin DFI before their first branch is opened in Wisconsin; thereafter the out-of-state bank may establish additional branches in Wisconsin without further notice to DFI.

    You also should be aware that interstate branching by commercial banks is addressed in the Regulatory Relief legislation currently being considered in Congress. If the present version of the legislation passed by the House of Representatives is also passed by the Senate, then there would be complete nationwide interstate branching permitted for commercial banks, without the possibility of further restrictions by states.

    Thus, if this federal law is enacted, it would essentially make moot Wisconsin’s new interstate branching legislation. For example, Wisconsin banks could branch into Minnesota and Iowa, and vice versa, based purely on the new federal law that would override state laws in this area. However, it is not at all certain that this legislation will be passed by the Senate, and its proposed treatment of interstate branching, with its exclusion of industrial loan companies (i.e., Wal-Mart) from any branching authority, is controversial to some parties.

This Financial Institutions Update is published to provide our friends and clients with current information that may affect their businesses. This information is not intended to serve as specific legal advice or as a solicitation for business.

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