Banks Cross The Line New Laws Shatter Barriers Limiting Interstate Banking

Inland Northwest banks are running for the border.

Spurred by competition and changes in federal and state law, several financial institutions are finding ways to reach customers previously sealed off by barriers to interstate banking.

Consumers, officials say, will be the ultimate beneficiaries of the migration.

“It improves banking services,” said John “Jerry” Lehman, president of Farmers & Merchants Bank.

The Spokane-based bank is one of several that may drop their charters in either Washington or Idaho for another on the opposite side of the border.

The maneuver would allow them to branch in their new home state without restricting expansion where they were founded.

And commuters, businessmen and shoppers who had to maintain multiple accounts could do their banking on either side of the state line with a single account.

Three Eastern Washington banks - Pend Oreille, Inland Northwest, and the Bank of Latah - have already filed applications with the Idaho Department of Finance for charters in that state.

Bank of America Idaho, now headquartered in Coeur d’Alene, has asked the U.S. Comptroller of the Currency to approve a merger of its charter with that of Seattle-based Seafirst Bank, creating a new entity - Bank of America Northwest.

Twin River National Bank of Lewiston, which like Bank of America has a national charter, has also sought comptroller approval of a headquarters shift to Washington.

Another Lewiston Bank, Seaport Citizens, is also angling for a spot in Clarkston.

What became of the financial border patrol that used to shield citizens - and home-state banks - from invading pinstripes and wingtips?

They’ve reversed their role, becoming referees trying to assure large banks and small compete on a level field where consumers are the ultimate winners.

Gavin Gee, head of the Idaho Department of Finance, and John Bley, director of the Washington Department of Financial Institutions, were widely praised for their work to help open the border.

“The regulators have taken a real reasonable attitude,” said Lehman.

Gee and Bley said they, and the legislatures in both states, are trying to protect state-chartered banks from their national brethren, and to increase the availability of financial services.

“We’re not in business to play turf games,” said Bley.

Idaho and Washington this year passed laws that give banks with state charters the same privileges as those with national charters.

Bley said Congress heightened the importance of those “parity” provisions last year when members enacted legislation that expanded the ability of institutions like Bank of America to branch across state lines.

In part, that bill was an effort to clear up issues raised by a move into Idaho four years ago by U.S. Bancorp.

The Portland-based holding company had crossed the border by taking advantage of a little-used provision in federal law that permits the transfer of a national bank charter 30 miles.

First National Bank in Spokane, a U.S. Bancorp subsidiary picked up in the 1987 acquisition of Old National Bancorp, was packed off to Coeur d’Alene to become U.S. Bank of Idaho.

Gee unsuccessfully fought the move in the federal courts. But the issue of whether banks could make such an interstate shuffle over the objections of state authorities was unresolved until Congress clarified - and expanded - the possibilities for interstate expansion.

In response, Gee said, he and Bley asked their legislatures to grant state-chartered banks the power to move their headquarters 30 miles.

Any shift will be all but transparent, he said.

Gee said there is no obligation on the part of the newly rechartered bank to have its records in Idaho, or that any of its officers live in the state.

Idaho and Washington regulators will jointly examine the records of banks doing business in both states, splitting the expense as well as the tax revenues proportionately, he said.

Gee likened the sharing of regulatory responsibility to that long practiced in securities industry oversight.

“We have quite a bit of experience with this interstate business,” he said.

Gee added that consumers with complaints against a bank could notify authorities in either state of the problem.

“It doesn’t compromise regulatory oversight,” agreed Bley. “We’re not losing any jurisdictional authority.”

Bley said the law could also be applied to banks along the border with Oregon, but so far only one institution in the Vancouver area has inquired about using the provision.

There has been far less hesitation along the invisible line stretching between the Pend Oreille and Snake rivers.

“We are an Inland Northwest bank,” said Fred Schunter, president of the Spokane-based institution of the same name.

Inland, founded in 1990, has focused on expanding its reach within the county. But Schunter said the bank has customers in Kootenai County who want the convenient access to its services that a local branch would provide.

He said Inland plans to put its branch in the Post Falls Super-1 Foods store. A set of bank records will be maintained in that office, Schunter said, and he will spend some time there each week.

The headquarters of Inland Northwest Bancorporation, the holding company for the bank, will remain in Spokane, he noted.

Although Bank of Latah has also filed an application for an Idaho charter, President John Gilbert said a final decision will depend on negotiations for a branch site.

In Lewiston, President Jody Servatius said Twin River Bank wants to fill a gap left two years ago by the sale to West One Bank of Valley Bank, Clarkston’s only independent bank.

“We’ve had a lot of our customers who want us to come over there,” she said. “We’ve been working on this for almost two years.”

She said even a five-minute drive puts off small-business people who want to make daily deposits. “You need a presence in the community,” she said.

“This is one market,” agreed Greg Charlton, president of Seaport Citizens Bank.

Seaport officials have not yet decided whether to apply for a charter transfer, he said, but without the changes in state laws the option would be foreclosed while Twin River faces no such barrier.

Lehman said Farmers & Merchants Bank will approach the border cautiously. Although the bank serves many Idaho customers, he said, officials want to have a firm game plan before proceeding with an application.

“I don’t think there would be any disadvantage that I can see to the consumer,” he said.

“If you do it right it just makes everything more efficient,” said Peter Stanton, president of Washington Trust Bank and the Washington Bankers Association.

But he added that officials have to be sensitive to differences as well as similarities in the markets if they want to succeed.

W.T.B. Financial Corp., the holding company for Washington Trust, already owns an Idaho bank - Northern State Bank in Post Falls.

Stanton said W.T.B. would have unique problems combining its operations without jeopardizing customer loyalty, although a dual-name strategy like the Seafirst-Bank of America arrangement might work.

Any step that would eliminate another examination or regulatory hoop would be welcome, he said.

R. Jay Tejera, a banking analyst for Dain Bosworth, said the ability to bank across the border should be a boon to institutions and consumers alike.

A bank like Inland Northwest will be able to reach the small businesses that are its bread and butter, he said, while consumers will be able to access their accounts anywhere in the region.

Tejera said the activity also has larger implications because it banishes misconceptions and indicates bankers believe the Interstate-90 corridor has exciting prospects.

“You had the feeling there was a little bit of a wall up at the state line,” he said. No more.

“I only see positives in this,” he said.

, DataTimes ILLUSTRATION: Photo; Staff illustration by Charles Waltmire