I. INTRODUCTION
As typical of any other state, the evolving structure of the banking industry in Nebraska regularly attracts center stage attention of bankers and state lawmakers alike. The structure of banking organizations within Nebraska has been the subject of numerous legislative proposals, hearings, studies and debates. In theory, when considering the respective interests of bank management, bank investors and bank customers alike, and reconciling such interests with concerns that may be expressed by the public-at-large, the ideal banking structure should ensure safety and soundness, stability and profitability. More specifically, from a state legislative viewpoint the ideal structure should offer banks the opportunity to operate efficiently and competitively, to promote “the public necessity, convenience, and advantage,” (Neb.Rev.Stat. § 8-122) and to meet the needs of its customers. In reality, there have been sharp disagreements within the industry and among lawmakers as to what type of banking structure would best achieve such theoretical objectives. As a result, bank structure laws may best be described in terms of the ongoing processes of design and construct, accommodation and compromise.
The purpose of this Article is to provide an historical and descriptive overview of major legislative enactments regarding Nebraska bank structure. This Article will not address public policy arguments over whether one structural change is preferable to another. The advantages or disadvantages of one form or structure over another have been rehashed in volumes of material found elsewhere and are also omitted from discussion. It will be observed in this Article that the grant of legislative authority for banks to merge or acquire, to consolidate or branch, or to otherwise conduct multiple-office banking by any means are considered as different aspects of the same fundamental issue – bank structure – and that furthermore, the issue of a state’s bank structure has been a continuing interrelationship between state and federal public policy.
A. The Inter-Play of Federal and State Bank Structure Laws
Bank structure in the United States has remained decentralized as a result of deliberate public policy decisions made on the federal legislative level. Although state and national branch banking first appeared in the late eighteenth century and expanded in the early nineteenth century, it was towards the end of the Civil War, with the passage of the National Bank Act, that branch banking effectively came to an end until the turn of this century. The National Bank Act imposed a tax of ten percent on note-issues of state banks. Since note-issuing, rather than deposit-taking, was generally employed to attract funds for loans, the ten percent tax made such note-issuing uneconomical and for the most part, branches used for distributing the notes were subsequently closed. Furthermore, the National Bank Act made no mention of the ability of nationally chartered banks to branch.
Although the Act was amended in 1865 allowing state banks converting to national charters to retain their existing branches, there were no strong economic incentives at that time for either national banks or state chartered banks to branch. As American urbanization grew and Americans grew mobilized, fundamental bank structure changes would become inevitable.
In 1927, the McFadden Act allowed national banks to establish branches within their home-office cities so long as state-chartered banks were given similar authority. The Banking Act of 1933 authorized national banks to establish branches anywhere within a state to the same extent and under the same conditions that state law allowed state-chartered banks to branch.
As a result of the Great Depression, the era of “free” banking gave way to the beginning of the modern period of “regulated” banking. The United States Congress partially segmented commercial and investment banking in the Banking Act of 1933 which also created the Federal Deposit Insurance Corporation. The segregation of banking and commerce was extended to restrictions on activities of corporate owners of banks through the 1956 Bank Holding Company Act and the Bank Holding Company Act Amendments of 1966 and 1970. The 1956 Bank Holding Company Act limited the further expansion of multi-bank holding companies by requiring Federal Reserve Board approval for new acquisitions. The “Douglas Amendment” to the 1956 Act prohibited interstate bank acquisitions by holding companies. The 1970 Amendments to the Bank Holding Company Act brought one-bank holding companies under federal regulation and changed the definition of “bank” to include institutions that accept demand deposits and extend commercial loans. As a result of this definitional change, a new means to avoid the Bank Holding Company Act restrictions was later devised by the establishment of so-called “nonbank banks.” These entities either extended commercial loans or accepted demand deposits, but did not engage in both activities, effectively carrying out banking activities without the regulatory limitations of the Bank Holding Company Act or the geographic restrictions of the “Douglas Amendment.” It was not until 1987 that the Competitive Equality Banking Act changed the definition of a “bank” in order to eliminate the “nonbank-bank” loophole.
B. The Birth of Banking in Nebraska (1855-1857)
In January of 1855, the first Nebraska Territorial Legislature convened. Although the Territorial Legislature’s primary task was to organize a government, one of its first items of business prohibited both the formation and operation of the business of banking in the Nebraska Territory. The 1855 Act, incorporated as part of the Nebraska Territorial Criminal Code, provided:
If any person [shall] subscribe to, or become …. in any way interested in any association or company formed for the purpose of issuing or putting in circulation any bill, check, ticket, certificate, promissory note, or other paper of any bank to circulate as money in this territory, he shall be punished by imprisonment in the county jail not exceeding one year, or by [a] fine [of] not more than one thousand dollars.
This legislative action was not unique, in that several years earlier, the Iowa Territorial Legislature had similarly prohibited the business of banking. The salient reasons for these territorial legislative enactments are twofold: first, to temporarily prohibit the business of banking until laws regulating the business could be enacted; and second, to temporarily curb any further financial unrest that could occur within the territory resulting from the issuance of banknote currency.
In January, 1856, the second Nebraska Territorial Legislature approved five special corporate charters, authorizing them to operate the business of banking. The authority to issue banknotes by these charters was specifically allowed. Additional special bank charter legislation was approved in 1856 and 1857. But the ensuing financial panic of 1857 put an end to all but one of the specially chartered banks in territorial Nebraska, as well as effectively ending further issuances of banknote currency. Notwithstanding the financial events of 1857, the third Nebraska Territorial Legislature had repealed the ban on the formation or operation of the business of banking. In the aftermath of the financial and business disasters resulting from the panic of 1857, private banking in Nebraska first took root.
II. THE ERA OF “UNIT” BANKING (1855-1983)
Since commercial banks were first subjected to the jurisdiction of the Nebraska Territorial Legislature in 1855, the structure of banking organizations within the state has been the topic of many legislative hearings and debates.
For over a century, Nebraska law provided that all commercial banks were required to be chartered, incorporated and formally organized as separate and distinct unit banking institutions, located exclusively within the limits of incorporated municipalities. Even though state law formally confined commercial banking to a “unit” banking structure, Nebraska developed a number of informally organized “chain banking” entities.
A. Multi-Bank Holding Companies -- Restrictions and Exceptions (1963 - 1983)
The Nebraska Bank Holding Company Act, effective March 12, 1963, made it unlawful for any bank holding company to form a multi-bank holding company (but not one bank holding companies) after such date. Specifically, the law stated in part that:
. . . it shall be unlawful for a bank holding company operating in this state to acquire ownership or control of twenty-five percent or more of the voting shares of any bank operating in this state.
It would be incorrect to assume that, as a result of this legislation, no multi-bank holding companies operated in Nebraska. The law contained a grandparenting clause, which in effect, enabled a Minnesota based bank holding company to retain ownership and operation of five banks in the state: three in Omaha and two outstate. B. One-Bank Holding Companies (1973 to Present)
In September, 1973, the legislature passed the Nebraska “One Bank Holding Company Act.” A one-bank holding company is defined as a company which directly or indirectly owns or controls 25% or more of the voting shares and controls the election of the majority of directors of no more than one bank. The Nebraska “One Bank Holding Company Act” was passed for the identical reasons that the United States Congress in 1970 amended the federal “Bank Holding Company Act of 1956:” to subject one-bank holding companies, which did not fall within the definition of multi-bank holding companies, to the regulatory control of the Federal Reserve Board.
C. Auxiliary Teller Units – Accommodating a “Branchless” Banking Environment (1959 - 1983)
The first shoot to spring forth from Nebraska’s branchless bank structure system took place in 1959 when the law was amended to allow banks in metropolitan, primary, or first-class cities to maintain a detached drive-in teller office within 2,600 feet of the main bank. In 1973, the law was further changed to permit the establishment of “auxiliary teller offices” subject to several restrictions. With the approval of the Director of the Nebraska Department of Banking and Finance, any bank could maintain an attached auxiliary teller office and up to two detached auxiliary teller offices to be used as drive-in and walk-up off-street banking facilities, all located within the corporate limits of the city where chartered. One detached office had to be located within three miles of the main bank. No detached facility could be located within 300 feet of another non-participating bank or within 50 feet of another auxiliary teller office. The services of such offices were restricted to receiving deposits of every kind and nature, cashing checks or orders to pay, issuing exchange and receiving loan payments. Loans could not be made at such auxiliary teller units.
D. Electronic Funds Transfer Systems – Facilities Are Not Construed as Branches (1975 to Present)
In 1975, another innovation to Nebraska banking structure laws was recognized by the enactment of legislation defining electronic funds transfer systems. Since 1975, neither manned nor unmanned electronic satellite facilities are considered branch banks. This legislation, specifically excluding electronic facilities from being construed as branches, was necessary in that the McFadden Act defines a branch as a “branch bank, branch office, branch agency, additional office, or any branch place of business . . . at which deposits are received, or checks paid, or money lent.” The definition applies only to national banks. Accordingly, without clarification in state law, the operation of an off-premises electronic funds transfer terminal may have been interpreted as a branch for a national bank, but not for a state bank.
III. THE LEGISLATIVE EVOLUTION OF INTRASTATE BANK STRUCTURE IN NEBRASKA (1983 to Present)
A. Entry into the Branching and Multi-Bank Holding Company Era
The year 1983 marked a watershed year for Nebraska commercial bank structure. Legislation was enacted not only to permit limited de novo branches within municipalities and to relax limits on multi-bank holding companies, but also to allow for the merger or acquisition of troubled institutions and to permit the chartering of limited interstate credit card banks.
Since 1983, layers of additional branching rights, limitations or exceptions to the Bank Holding Company Act and to the general branching statute (§ 8-157) had been added, almost annually, to either close so-called statutory loopholes or to accommodate certain issues, such as the thrift crisis or a particular bank’s unique circumstances. As a result of these subsequent legislative and interpretive changes, further liberalizations of Nebraska bank structure laws were made, with the end result that Nebraska could be categorized as allowing, de facto, statewide branching through merger or acquisition.
In 2002, this de facto policy of statewide branching on a de novo basis was formalized de jure with the passage of comprehensive branch banking amendments. The 2002 legislation also revised the Bank Holding Company Act bank “deposit cap” by making statewide branching rights subject to the deposit cap limitations.
B. Branch Banking
1. De Novo Branching
LB 58, effective August 26, 1983, allowed a bank, on a de novo basis, to establish up to three branch offices by 1983; up to four branches by 1984; and up to five branches by 1985 and thereafter, all within the city in which the main bank is located. Although the law referred to such offices as “detached auxiliary offices,” full banking services were permitted.
In 1988, LB 703 was enacted into law, effective April 8, 1988, which removed certain distance prohibitions of both attached and detached auxiliary offices. Specifically, the requirement that an attached auxiliary office not be “within 300 feet of another bank’s auxiliary or detached office” was deleted from state law.
Also, the requirement that one of two or more auxiliary offices shall be located within three miles of the bank premises specified as its place of business in its charter was deleted from previous law. The prohibition against locating any auxiliary office within 300 feet of another bank or within 50 feet of any other auxiliary office was also lifted by LB 703. Finally, LB 703 allowed banks located within the zoning jurisdiction of a city of the primary class (only Lincoln meets the definition at this time), to establish and maintain auxiliary offices within the corporate limits of such city.
Legislation enacted in 1991 made further exceptions to the de novo branching statutory provisions. LB 190, effective September 5, 1991, allowed banks located within an unincorporated city or unincorporated area in a county that contains a city of the primary class (again, only Lincoln currently meets this definition), to establish and maintain auxiliary offices within the corporate limits of such city. Under the provisions of LB 1275, effective April 5, 1996, the ability of a bank in an unincorporated city or unincorporated area in a county that contains a city of the primary class to establish and maintain auxiliary offices within the corporate limits of the City of Lincoln was eliminated. Those banks that had taken advantage of these branching provisions prior to April 5, 1996, were allowed to retain their full complement of branching rights within the City of Lincoln. LB 782, effective September 5, 1991, expanded the limitation of five detached auxiliary offices to six such de novo offices.
LB 470, enacted in 1992 and effective on March 26, 1992, again amended the primary branching authority statute (§ 8-157). LB 470 changed previous Nebraska branch banking nomenclature (e.g., branch, auxiliary office, detached office) to “branch bank” as a uniform expression. Also, any bank located in a Class I county (population of 300,000 or more, i.e., Douglas County) or a Class III county (population of at least 100,000 but less than 200,000, i.e., Sarpy County) could establish and maintain an unlimited number of branches within either a Class I or Class III county or within both. Any bank located in a Class II county (population of at least 200,000 but less than 300,000, i.e., Lancaster County) could maintain up to nine branch banks, as limited by statute, within the Class II county. Any bank situated in a Class IV county (population of less than 100,000, i.e., all counties, except Lancaster, Douglas and Sarpy Counties) was limited to six branch banks within the corporate limits of the city in which such bank is located. LB 470 also restricted state-chartered building and loan associations from future branching except to the extent allowed for state-chartered banks. Finally, the measure also allowed acquiring banks to exercise any further branching rights held, but not used by the acquired bank, subject to the class of county restrictions (commonly referred to as “retained branching rights”). In 1997, LB 56 was enacted, effective on March 11, 1997, to provide that a bank located in a Class II County (population of at least 200,000 and less than 300,000) could establish and maintain up to 12 branches, however, the branching authority of banks located within the zoning jurisdiction of a primary class city (i.e., Lincoln) and of banks located in an unincorporated city or area within a Class II county was limited to nine branches.
LB 1089, effective July 20, 2002, authorized statewide de novo branching. The deposit cap law was amended to provide that any bank exceeding the 22% deposit limitation is prohibited from acquiring or merging with another institution or chartering another institution and has its branching rights restricted from statewide de novo branching to de novo branching only in the county in which the bank is located, unless the bank is located in either a Class I or Class III County (Douglas or Sarpy County respectively), in which case the bank would continue to enjoy unlimited branching rights in both Douglas and Sarpy Counties.
2. Conversion of Acquired Cooperative Credit Association into a Bank Branch
LB 58, enacted in 1983, authorized any bank to acquire any cooperative credit association located within the county or contiguous county of the bank’s main office and operate it as a branch office.
3. Conversion of Acquired “Failed” or “Failing” Financial Institution into a Bank Branch
Even before the de novo branching provisions of LB 58 took effect, emergency legislation was enacted to allow for a Nebraska bank to acquire a failing financial institution in Nebraska and operate it as a full service office (LB 241e; the “Failing Bank” Act). LB 241e (effective March 31, 1983) also allowed for statewide cross-industry acquisition with the acquired office being operated as a branch.
Less than one year later, on March 8, 1984, LB 1026e became law. This was the next stepping stone to statewide branching. LB 1026e provided that any detached auxiliary office established and maintained by a bank under the Failing Bank Act, would not count against the number or location of such detached offices otherwise restricted by law.
4. Conversion of Acquired or Merged Financial Institution into Bank Branch
The next major structure change became effective March 4, 1985, with the passage of LB 295. This legislation, as it pertained to branching, kept the existing limitations placed on banks within a bank’s home city, but allowed unlimited branching by either merger or acquisition throughout the state. Such “extra-municipal” branching would be permitted only if the bank or bank holding company first merged with or acquired an existing financial institution, which had been chartered for a period of five years, and then converted such financial institution into a branch of the surviving bank. De novo “extra-municipal” branching was still not permitted. With the passage of LB 983, effective April 18, 1986, the number of years required to be chartered for merger or acquisition eligibility was reduced from five years to three years. This three-year requirement was further reduced to 18 months, effective April 18, 1988, as a result of LB 703.
5. Branch Acquisition
Limited branch acquisition was also recognized when LB 272 was signed into law, effective May 26, 1989. LB 272 provided:
[A] bank may acquire the assets and assume the deposits of a detached auxiliary office of another bank in Nebraska if [each of the following three conditions are met]: (a) The acquired detached auxiliary office has been approved for more than eighteen months; (b) the acquired detached auxiliary office is converted to an auxiliary office of the acquiring bank; and (c) the bank from which the detached auxiliary office is acquired and the acquiring bank are subsidiaries of the same bank holding company or the detached auxiliary office to be acquired was chartered as a bank prior to becoming a detached auxiliary office.
Once acquired, all banking transactions required by law may be performed at the acquired office. In addition, the acquired office will not count against the number of locations of branch offices otherwise permitted by law and will not limit the authority of a bank acquiring other banks and their branches.
In 1996, LB 1275 was signed into law, effective April 5, 1996. Under this legislation, the ability to acquire branches from other healthy financial institutions was expanded to allow a bank to acquire the assets and assume the deposits of a detached branch of another financial institution in Nebraska if each of the following two conditions are met: (a) the acquired detached branch has been established, maintained, and operated for more than eighteen months; and (b) the acquired detached branch is converted to a detached branch bank of the acquiring bank. Once acquired, all banking transactions allowed by law may be performed at the acquired detached branch. In addition, the acquired detached branch will not count against the number of locations of branch offices otherwise permitted by law and will not limit the authority of a bank acquiring other banks and their branches. This procedure has been utilized by a number of banks in acquiring branches of healthy thrifts that would have otherwise been closed (examples include prior bank purchases of healthy thrift branches following the FirsTier Bank, N.A. purchase of Occidental Federal Savings and Loan and the First Bank, N.A. purchase of Metropolitan Federal Savings Bank).
6. “Eligible Savings Association” Acquisitions
Further inroads into branch acquisitions were subsequently enacted in response to the thrift crisis of the late 1980s and the resultant federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). In 1990, LB 956 was signed into law, effective March 12, 1990. Pursuant to state legislation:
[A] bank may acquire an eligible savings association and convert the eligible savings association into a detached auxiliary office of the acquiring bank [under two conditions]: (a) the eligible savings association was established and maintained at its existing location prior to August 9, 1989 [the effective date of FIRREA of 1989], and was maintained at such location on such date and (b) the acquiring bank purchases or assumes all or any part of the assets or liabilities of the eligible savings association or agrees to act as the paying agent of the Federal Deposit Insurance Corporation or Resolution Trust Corporation with respect to the deposit liabilities of the eligible savings association.
“Eligible savings association” is defined as:
the main office, any or all branches of the main office, or the main office and any or all branches of the main office of any federally chartered or state-chartered savings bank, building and loan association or savings and loan association the deposits of which are insured by the [FDIC] (a) with respect to which any adjudication or other official determination of any court of competent jurisdiction, the director, the appropriate federal banking agency, or any other public authority has resulted in the appointment of a conservator, receiver, or other legal custodian or (b) which fails to meet the minimum capital requirements applicable to it as established by law or regulation promulgated by its principal federal or state regulator. The determination of whether any federally chartered or state-chartered savings bank, building and loan association, or savings and loan association has failed to meet the minimum capital requirements applicable to it shall be made without regard to whether it has been granted any forbearance or other relief from any statutory, regulatory, or other capital requirements by any federal or state regulator, whether the institution has submitted to any such regulator a plan to meet applicable capital requirements or standards over time, or whether any such capital plan has been approved by a federal or state regulator.
7. Retained Branching Rights
In addition, LB 956 allows a bank to acquire the assets and assume the deposits of a detached auxiliary office of another bank in Nebraska . . . or eligible savings association acquired by another bank in Nebraska pursuant to . . . this act if (a) the acquired detached auxiliary office or eligible savings association is converted to an auxiliary office of the acquiring bank and (b) the detached auxiliary office or the eligible savings association to be acquired was operated, established, and maintained as an eligible savings association at its existing location prior to August 9, 1989, and was maintained at such location on such date. Once acquired, all banking transactions that are allowed by law may be performed at the acquired office. In addition, the acquired office will not count against the number of locations or branch offices otherwise restricted by law and will not limit a bank to acquire other banks and their branches.
The concept of retained branching rights was further expanded with the passage of LB 456 in 1995. Effective on September 9, 1995, LB 456 allowed acquiring banks to exercise any further branching rights held, but not used by the acquired financial institution (this authority had previously been limited to acquired banks), subject to the class of county restrictions and further subject to the restriction that the acquired institution is “deemed . . . to have been permitted to establish and maintain detached branches solely to the extent permitted to state-chartered financial institutions” under § 8-157(2) or under § 8-345.02 at the time of establishment of a new detached branch. The provisions of LB 456 were primarily designed to allow banks that had acquired a building and loan association or savings and loan association to retain the branching rights held, but not yet utilized by the acquired institution. Since federally chartered savings and loans have unlimited branching rights and state chartered building and loan associations had unlimited branching rights in Nebraska prior to March 26, 1992, the restrictions contained within LB 456 limit the retained branching rights to those which exist for state chartered institutions at the time that a new detached branch is established.
8. Loan Closings Off Bank Premises – Activities Are Not Construed as Branching
Pursuant to LB 81, adopted in 1993, banks were granted greater flexibility in conducting loan closings at locations other than the place of business specified in the bank’s charter or any detached branch of the bank. Prior Nebraska Department of Banking and Finance Interpretations held that the practice of “closing” a loan at any location other than the main bank premises or a branch thereof, constituted an impermissible branching activity. As a result, loan closings handled contemporaneously with a real estate closing at the office of an attorney, real estate agent or title insurance agent, or the practice of having a bank customer sign a note at his or home in the presence of a bank officer constituted violations of state branching laws. Uncertainty also existed in the area of permissible “loan closing” activities that could be conducted at a bank’s loan production office.
Among the provisions of LB 81 are amendments to § 8-157(9) which took effect on February 20, 1993, that specifically state:
A bank which has a main chartered office or approved branch bank located in the State of Nebraska may, through any of its executive officers, including executive officers licensed as such pursuant to § 8-139, or designated agents, conduct a loan closing at a location other than the place of business specified in the bank’s charter or any detached branch thereof. The director may adopt and promulgate rules and regulations to implement the provisions of this section.
9. Restrictions on “Reverse Bank Mergers” and “Charter Application/Cross Industry Mergers”
During the mid 1990’s, a number of innovative approaches were developed to avoid the branching restrictions that continued to exist under Nebraska law. The first of these approaches, commonly referred to as a “reverse bank merger,” involved the merger of an existing bank (chartered for more than 18 months) into a newly established and chartered bank. A second approach, known colloquially as a “S & L charter application/cross-industry merger” involved a procedure under which a bank applied for a state savings and loan charter and simultaneously made application to convert the newly established state savings and loan to a branch of the bank, using the cross-industry acquisition/merger provisions of Nebraska law. Under the “reverse bank merger” approach, if the new state bank charter application was approved, the previously existing bank was converted into a branch of the new bank. Under the “S & L charter application/cross-industry merger” procedure, the newly chartered state savings and loan was merged into the previously existing bank.
Traditionally, it was believed that the acquisition by a bank of another bank or financial institution through purchase or merger with conversion of the acquired institution to a branch of the acquiring bank required an eighteen month waiting period after the charter was approved under § 8-157. This traditional “school of thought” was dispelled by these newly created exceptions, which in effect, allowed a bank to establish a branch bank in a community in which it could not have otherwise branched directly. In essence, the eighteen-month waiting period and associated capitalization requirements could be avoided under either the “reverse bank merger” or the “S & L charter application/cross-industry merger” procedures described above.
In 1996, legislation was adopted to eliminate these two exceptions to traditional branching restrictions in Nebraska. LB 1275, which became effective on April 5, 1996, effectively reinstates the eighteen-month chartering requirement that must be satisfied prior to the establishment of a branch following a merger or acquisition of financial institutions. LB 1275 was designed to negate circumvention of existing branching restrictions via the “S & L charter application/cross-industry merger” procedure and the “reverse bank merger” procedure with respect to applications filed after April 4, 1996. This result was accomplished under the provisions of LB 1275 which require both the acquired financial institution and the acquiring bank involved in an application for an acquisition or merger filed after April 4, 1996, to have been chartered for more than eighteen months.
10. Bank Agency Authority for Affiliates
In 1995, in response to the United States Congress’ passage of the Riegle-Neil Interstate Banking and Branching Efficiency Act, the Nebraska Legislature adopted LB 384 which in pertinent part allows a state chartered bank to act as “agent” for its affiliates. The law, effective September 29, 1995, amended § 8-916, providing in part:
(1) Any bank subsidiary of a bank holding company may receive deposits, renew time deposits, close loans, service loans, and receive payments on loans and other obligations as an agent for a depository institution affiliate without regard to the location of the depository institution affiliate.
Section 8-916(2) further provides that a bank acting as an agent for a depository institution affiliate in accordance with § 8-916 “shall not be considered to be a branch of the affiliate.”
11. Mobile Branches
Until 1997, the State Department of Banking considered a “mobile branch” to be located at each site where it transacted banking business. Due to the numerical limitation on branch locations this interpretation generally rendered the utilization of mobile branches impractical. With the passage of LB 136 in 1997, each bank in Nebraska was authorized to establish a mobile branch that may transact banking business within the community or area in which the bank is authorized to establish branches. Branches of banks that were formerly chartered as financial institutions are eligible to establish a mobile branch and the mobile branch may consist of multiple vehicles.
With the passage of LB 1089 in 2002, Nebraska mobile branching law allows for any bank located in Nebraska to establish and maintain, in Nebraska, a mobile branch that may transact banking business only within the county or contiguous counties in which the bank or branch is located. A mobile branch may consist of one or of multiple vehicles.
12. Statewide De Novo Branching
LB 1089, effective July 20, 2002 authorized statewide de novo branching and increased the 14% “deposit cap” to 22%. An amendment to the deposit cap law provides that once a bank exceeds the 22% level, it is prohibited from acquiring or merging with another institution or chartering another institution and has its branching rights restricted from statewide de novo branching to de novo branching only in the county in which the bank is located, unless the bank is located in either a Class I or Class III Count (Douglas or Sarpy County), in which case the bank would continue to enjoy unlimited branching rights in both Douglas and Sarpy Counties.
C. Bank Holding Companies
LB 58 was also the vehicle to lift Nebraska’s multi-bank holding company ban that had been in place since 1963. Effective August 28, 1983, bank holding companies, including out-of-state holding companies that owned at least two Nebraska banks on March 12, 1963, were permitted to acquire state or national banks in Nebraska that had been chartered for at least five years. Acquisition of banks by any such holding company was prohibited if the banks acquired would have total deposits greater than an amount equal to 9% of total deposits held by all banks and savings and loans in Nebraska. As a further restriction, the bill provided that no bank holding company shall control or own more than nine banks located within the state. Again, prior to LB 58 taking effect, the “Failing Bank Act” (LB 241e; effective March 31, 1983) allowed for a Nebraska bank or bank holding company to acquire a failing financial institution and operate such as a subsidiary of the holding company where all permitted banking transactions could be made.
In 1984, LB 1026 was enacted to exempt banks acquired under the Failing Bank Act between March 8, 1984, and July 1, 1987, from the limits on total number of banks owned or percent of total deposits under a holding company’s control in Nebraska. The1985 Nebraska Legislature, with the passage of LB 295, retained the numerical limitation of nine banks owned or controlled by a bank holding company, but the bill also raised the total deposit limitation placed on bank holding companies from 9% to 11% of bank and savings and loan deposits in the state. The deposit limitation was subsequently raised from 11% to 12% (LB 375, 1988; effective January 1, 1990), from 12% to 13% (LB 1146, 1990; effective January 1, 1991), from 13% to 14% (LB 1146, 1990; effective January 1, 1992) and from 14% to 22% (LB 1089, effective July 20, 2002). LB 1146, effective April 7, 1990, also exempts any bank or bank holding company which acquires the assets and liabilities of other institutions through the Failing Bank Act, the Resolution Trust Corporation (RTC) or the FDIC from the deposit limitations until January 1, 1994. In 2008, LB 851 was enacted, which in part excludes from the computation of the 22% deposit limitation, any deposits accepted by a bank from non-residents of Nebraska, which are voluntarily segregated by such bank for purposes of reporting to the Director of the Department of Banking to allow the Director to determine the amounts of such deposits.
The 1995 Legislature, with the passage of LB 384, removed the numerical limitation of nine banks owned or controlled by a bank holding company. LB 1089 of 2002, in addition to increasing the deposit limitation to 22%, also provides that once a bank exceeds the 22% limitation level, it is prohibited from acquiring or merging with another institution or chartering another institution. Such an “over-the cap” bank also has its branching rights restricted from statewide de novo branching to de novo branching only in the county in which the bank is located, unless the bank is located in either a Class I or Class III County (Douglas or Sarpy County respectively), in which case the bank would continue to enjoy unlimited branching rights in both Douglas and Sarpy Counties. If a bank becomes an “over-the-cap” bank, the bank may continue to maintain any established branch.
IV. HISTORICAL SURVEY OF THE LEGISLATIVE EVOLUTION OF INTERSTATE BANK STRUCTURE IN NEBRASKA (1983 to Present)
A. Credit Card Banks
While much attention was focused up on the passage of LB 58 in 1983, little public attention was given to a measure making further inroads into interstate banking which became law on August 26, 1983. LB 454 permitted an out-of-state bank holding company or its subsidiary to acquire a newly chartered bank if it is limited to a single office and limited to credit or transaction card business. Such bank may not acquire another bank. Minimum capital requirements are $2.5 million and the acquired bank must employ 50 or more persons in one year. There is no reciprocity requirement. The bank must operate in a manner not likely to attract Nebraska customers nor detrimental to existing banks in Nebraska.
Further refinements to this “limited” interstate banking venture were made the following year with the enactment of LB 1076, effective July 10, 1984. The bill as passed, allowed for employees of a qualified association that perform credit card processing services to be counted in meeting LB 454’s minimum employment requirements. In addition, LB 1076 provided that a bank acquiring or controlling a newly established credit card bank will not have such acquisition count against the total deposit or bank acquisition limits otherwise restricted by law. Finally, the bill limited deposits in credit card banks to those received from affiliated banks not domiciled in Nebraska.
B. Interstate Banking
In 1988, LB 375 was passed into law providing for regional reciprocal interstate banking commencing on January 1, 1990 and national reciprocal interstate banking beginning on January 1, 1991. The bill contained supervisory powers for the Department of Banking, including the application process, reviewing examination, and community reinvestment review authority. LB 375 provisions were later repealed by the Legislature with the passage of LB 384 in 1995. LB 384, entitled the “Nebraska Bank Holding Company Act of 1995,” implemented the interstate banking provisions of the federal “Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.” For the purpose of an ongoing historical overview, the following is a description of the provisions of LB 375.
1. Regional Reciprocal Interstate Banking
LB 375 defined a regional out-of-state bank holding company to be a bank holding company domiciled in any one of the “north-central states.” The north-central states were: “Wisconsin, Minnesota, North Dakota, Montana, South Dakota, Wyoming, Colorado, Kansas, Iowa and Missouri.”
[O]n or after January 1, 1990, a bank holding company . . . which [was] a regional out-of-state bank holding company incorporated and domiciled in a north-central state which authorize [d] the acquisition or control of banks in that state by a Nebraska bank or Nebraska bank holding company under conditions no more restrictive than those imposed by the laws of Nebraska, . . . [was not to be prohibited] from directly or indirectly owning or controlling more than twenty-five percent of the voting shares of any bank or the power to control in any manner the election of a majority of the directors of any bank unless upon such acquisition the banks so owned or controlled in Nebraska would have deposits in Nebraska greater than an amount equal to twelve percent of the total deposits of all banks in this state. . . .
LB 375 also provided that “any out-of-state bank or bank holding company shall not have a name deceptively similar to an existing Nebraska bank or Nebraska bank holding company, as determined by the Director of Banking and Finance.”
A regional out-of-state bank holding company may not acquire a bank that has been chartered by the state or the office of the comptroller of the currency for less than five years. Regional out-of-state bank holding companies were also made subject to the provisions of LB 1026.
2. National Reciprocal Interstate Banking
LB 375 also provides:
Commencing on or after January 1, 1991, a bank holding company domiciled in a state which authorize[d] the acquisition or control of banks in that state by a Nebraska bank or Nebraska bank holding company under conditions no more restrictive than those imposed by the laws of Nebraska, as determined by the Director of Banking and Finance, [could] own or control more than twenty-five percent of the voting shares of any bank or the power to control in any manner the election of a majority of the directors of any bank upon the same conditions and with the same limitations as those made applicable to a regional out-of-state bank holding company incorporated and domiciled in a north-central state.
3. Nationwide Interstate Banking
a. “Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994” Barriers to nationwide banking were removed by the United States Congress in 1994. The “Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994” (“Riegle-Neal”) was signed into law by President Clinton on September 29, 1994. Riegle-Neal authorizes interstate acquisitions by bank holding companies, interstate mergers of banks, interstate bank branching and “agency banking” with affiliate banks in different states.
Under Riegle-Neal, interstate bank acquisitions and “agency banking” were permitted as of September 29, 1995 and interstate bank mergers and interstate branching will be permitted as of June 1, 1997. There is no “opt-out” provision for interstate banking. However, states may “opt-in” or “opt-out” of the interstate merger and branching provisions prior to June 1, 1997.
Riegle-Neal amended the federal Bank Holding Company Act to allow an adequately capitalized and managed bank holding company to acquire a bank located in another state, beginning September 29, 1995.
The Riegle-Neal Act further permitted a state (1) to specify a minimum age requirement, not to exceed five years, for banks that are acquired by out-of-state banking organizations and (2) to prohibit interstate acquisitions if the acquiring bank holding company - including all affiliates - would control ten percent or more of insured deposits nationwide or thirty percent or more of a state’s insured deposits after the acquisition. Individual states, by statute, regulation or order, may permit a lower concentration limit or “deposit cap” on the amount of insured deposits in the state controlled by any single bank or bank holding company, provided it does not discriminate against out-of-state bank holding companies, banks or their subsidiaries and may establish “agency banking” provisions permitting affiliated banks to act as agents for each other in the conduct of most core banking activities. Beginning September 29, 1995, affiliated banks were authorized to “receive deposits, renew time deposits, close loans, service loans, and receive payments on loans and other obligations” on behalf of each other, without being treated as branches.
b. Nebraska’s Response to the Riegle-Neal Act’s Nationwide Interstate Banking Provisions Effective, September 29, 1995, all interstate banking provisions relating to reciprocity were eliminated in Nebraska. LB 384 removed provisions from state law that discriminate against out-of-state bank holding companies in order to comply with the requirements of the Riegle-Neal Interstate Banking and Branching Efficiency Act. In establishing the Nebraska Bank Holding Company Act of 1995, LB 384 provided that an out-of-state bank holding company may acquire a bank or banks in Nebraska only if the bank or banks to be acquired have been chartered for five years or more and provided that the bank or banks so owned or controlled in Nebraska do not have deposits in an amount greater than allowed by the Nebraska deposit cap law. The legislation also authorized state-chartered banks and their affiliated banks to act as agents for one another in the conduct of core banking activities.
C. Nationwide Interstate Branching – Federal Legislation and Nebraska Response
Riegle-Neal generally permits adequately capitalized and managed banks to merge across state lines, beginning June 1, 1997. Interstate branching may be accomplished by merger or acquisition of existing institutions, or it may be accomplished by acquiring an existing branch in another state or by establishing a de novo branch in another state. However, branching through acquisition of an existing branch or on ade novo basis may only occur if expressly permitted by the law of the state where the branch is or will be located. Once a bank has established branches in another state, it may only establish and acquire additional branches in that state to the same extent as other banks in the state.
Under Riegle-Neal, states retain control over the structure of out-of-state banking organizations within their borders. States must decide prior to June 1, 1997, whether to allow out-of-state banks to operate as branches within their borders, or to require that they maintain separate charters.
1. Interstate De Novo Branching
Effective June 1, 1997, bank holding companies could merge existing bank subsidiaries into one bank and mergers between banks with different home states could occur in which one bank would survive and operate the other bank as an interstate branch. Prior to July 22, 2010, these interstate branching activities could be limited by “state entry rules” which could require an acquired bank to have been in existence for a specified period of time prior to becoming an interstate branch of the acquiring bank. The Federal Reserve Board could, however, approve the acquisition of a bank, which has been in operation for at least five years, regardless of the period specified by the laws of the host state. States were also granted the authority to require the acquisition of an entire bank charter, permit the acquisition of existing branches without the acquisition of a charter, or to permit de novo branching, at their discretion.
The ability of individual states to restrict interstate de novo branching activities was altered by the adoption of Section 613 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) which amended the National Bank Act and the Federal Deposit Insurance Act to eliminate state law provisions that bar de novo branching for out-of-state banks.
Prior to passage of the Dodd-Frank Act, de novo interstate branching across state lines was only permitted in those states which “opted-in” under the provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act (Riegle-Neal Act). A majority of states, including Nebraska, did not “opt-in” under the Riegle-Neal Act to permit de novo interstate branching. In Nebraska, an out-of-state bank could only enter the state through the acquisition of a bank, which had been in existence for at least five years, prior to becoming an interstate branch of the out-of-state bank. In addition, Nebraska law did not permit the acquisition of existing branches without the acquisition of a bank charter nor did it permit de novo interstate branching.
While the provisions of the Interstate Branching by Merger Act of 1997 (Neb.Rev.Stat. §§ 8-2101 to 8-2108) remain in effect, the Dodd-Frank Act has eliminated the opt-in requirement of the Riegle-Neal Act, opening the doors to de novo interstate branching by out-of-state banks, notwithstanding contrary provisions of state law. The Dodd-Frank Act revisions also serve to remove restrictions that had previously prohibited Nebraska banks from branching de novo into the more than 20 states that had prohibited de novo interstate branching.
Section 613 of the Dodd-Frank Act became effective on July 22, 2010.
The Dodd-Frank Act has eliminated the opt-in requirement of the Riegle-Neal Act, opening the doors to de novo interstate branching by out-of-state banks, notwithstanding contrary provisions of state law. The Dodd-Frank Act revisions also serve to remove restrictions that had previously prohibited Nebraska banks from branching de novo into the more than 20 states that had prohibited de novo interstate branching.
The provisions of the Interstate Branching and Merger Act (Neb.Rev.Stat. §§ 8-2101 to 8-2108) allow Nebraska state chartered banks to establish and maintain a branch or acquire a branch in another state and authorize such banks to engage in interstate merger transactions in any other state in which it is the resulting bank, subject to prior approval of the Department of Banking and payment of the merger and branch application fees. A Nebraska state chartered bank may conduct activities at any branch outside the state of Nebraska that are permissible under the laws of the host state where the branch is located or of the United States.
V. SUMMARY OF NEBRASKA BANK STRUCTURE LAWS
A. Intra-State Branching Rights
Nebraska branch banking laws allow for any bank located in Nebraska to establish and maintain, in Nebraska, an unlimited number of branches at which all banking transactions allowed by law may be made. Also, any bank or branch may establish and maintain a mobile branch to transact banking business only within the county or contiguous counties in which the bank or branch is located. A mobile branch may consist of one or of multiple vehicles. A bank may also convert an acquired or merged financial institution into a bank branch or acquire branches from other institutions.
If a bank exceeds the 22% deposit limitation level, it is not only prohibited from acquiring or merging with another institution or chartering another institution, such an “over-the cap” bank also has its branching rights restricted from statewide de novo branching to de novo branching only in the county in which the bank is located, unless the bank is located in either Douglas or Sarpy County, in which case the bank would continue to enjoy unlimited branching rights in both Douglas and Sarpy Counties.
B. Interstate Branching Rights
Bank holding companies are allowed to merge existing bank subsidiaries into one bank and mergers between banks with different home states may occur in which one bank survives and operates the other bank as an interstate branch.
Both one-bank and multi-bank holding companies are permitted to operate in Nebraska. Limited purpose credit card banks, operated by out-of-state bank holding companies, are allowed to be newly established. Although an out-of-state bank holding company, grandfathered in 1963 with the passage of the Nebraska Bank Holding Company Act, has operated in Nebraska, since September 29, 1995, out-of-state bank holding companies may acquire a bank or banks in Nebraska only if the bank or banks so owned or controlled in Nebraska do not have deposits in an amount greater than the 22% deposit cap.
D. Deposit Cap
The Nebraska deposit cap law prohibits a bank holding company from merging with or acquiring another bank in Nebraska if the resulting size of the institution after the merger or acquisition exceeds 22% of the total deposits held by banks and savings and loans in the state. The deposit cap does not prevent a bank holding company from continuing to experience “natural growth” above the 22% deposit limitation, however in that event, in spite of natural growth, a bank that exceeds the 22% limitation level is prohibited from acquiring or merging with another institution or chartering another institution. Such an “over-the cap” bank also has its branching rights restricted from statewide de novo branching to de novo branching only in the county in which the bank is located, unless the bank is located in either Douglas or Sarpy County, in which case the bank would continue to enjoy unlimited branching rights in both Douglas and Sarpy County. In calculating the deposit limit, deposits of non-residents of Nebraska which are voluntarily segregated by a bank for purposes of reporting to the Director of the Department of Banking to allow the Director to determine the amount of such deposits and bank holding company deposits acquired from other institutions under the Failing Bank Act between the dates of March 8, 1984, and July 1, 1987, or under the Failing Bank Act, the RTC or the FDIC between the dates of April 7, 1990, and January 1, 1994, do not apply.
VI. NEBRASKA STATUTORY AUTHORITY
A. Branching; merger or acquisition; electronic funds transfer; Neb.Rev.Stat. § 8-157 (1995 Cum. Supp.)
B. Bank Holding Companies: Neb.Rev.Stat. § 8-901 to 8-907 (Reissue 1991; 1993 Cum. Supp.)
C. One Bank Holding Company Act of 1973: Neb.Rev.Stat. § 8-1201 to 8-1207 (Reissue 1991)
D. Acquisition or merger of failing institution: Neb.Rev.Stat. § 8-1506 to 8-1510 (Reissue 1991; 1992 Cum. Supp; 1995 Cum. Supp.)
E. Credit Card Banks: Neb.Rev.Stat. § 8-1511 to 8-1514 (Reissue 1991; 1993 Supp; 1995 Cum. Supp.). See also, Bank Holding Companies.
F. Acquisition of Eligible Savings Associations: Neb.Rev.Stat. § 8-1515 (1992 Cum. Supp; 1995 Cum. Supp.). See also, Branching; Merger or Acquisition.
G. Interstate Branching by acquisition or merger: Neb.Rev.Stat. § 8-2102 to 8-2108 (1997 Cum. Supp.)
Branching Environment for Commercial Banks In Nebraska