Beginning July 1 a new interstate banking law will allow bank holding companies in South Dakota and Minnesota to purchase North Dakota banks and vice versa.
Following passage of the law in spring, the state Banking Board unanimously approved a reciprocity arrangement with South Dakota and Minnesota; other states will be considered on the basis of interest in acquisitions by North Dakota or out-of-state holding companies.
The reciprocity arrangement means that a holding company in another state may not present an application to acquire a North Dakota bank until both states agree to accept each other's interstate banking conditions. By demanding reciprocity, the state Legislature has equalized opportunities for North Dakota holding companies interested in expanding into other states.
Another rule established by the Legislature requires out-of-state holding companies that want to start or acquire a bank to project the number of developmental loans they will make annually. Designed to encourage business expansion in the state, this rule also stipulates that banks report yearly the actual number of economic development loans. If the institution fails to meet its own commitment, the state banking board has the option to levy a serious penalty.
Even though passage of the law ends the sometimes rancorous debate over the issue, strong feelings still exist. Indeed, while a long line of suitors for North Dakota banks is not expected to form on July 1, critics of interstate banking say it signals the beginning of the end for many rural communities despite these legislated protections. "Interstate banking is not a short-term thing," says James Goetz, president of Independent Community Banks of North Dakota. "It will take time to see the real effects.
"As large banks acquire small banks, the shareholders will benefit but the community at large won't," Goetz says. "You don't see that many bankers in Minneapolis sitting on community development boards out here," he adds. "It's just human nature to care about what you're close to."
One banker would like to see all restrictions on interstate banking removed. Wayne Puppe, president and chief executive officer of First Interstate Bank of North Dakota in Fargo, believes consumers will benefit from the increased competition. "The industry is changing, and we're looking for efficiencies to deliver products to consumers at a lower cost," he says. The states that still prohibit interstate banking are Montana and Hawaii; until earlier this year Kansas also belonged to that very small club.
—Kathy Cobb
