Banking officials from New York, New Jersey and Pennsylvania signed a Regional Interstate Branching Memorandum of Understanding (“MOU”) that greatly expands the ability of state-chartered banks with interstate branches in the three states to be regulated by their home state regulator. Previously, under state and federal law, interstate branches of banks have been subject to overlapping regulation, examination and enforcement by the home state in which the bank is chartered and the host state in which the bank has interstate branches. The MOU took effect immediately upon signing. The MOU is intended to strengthen the state-chartered banking system in the greater New York metropolitan region. A significant number of state-chartered banks have converted to federal charters in recent years. Under a provision of federal law governing interstate branching of state chartered banks, the laws of a host state where a branch is located arguably do not apply to the branch if such laws would be preempted by federal law if applied to a branch of a national bank in that state. However, many states require out-of-state banks establishing branches in the state to comply with host state law and some states, as a matter of comity, require their banks to comply with host state laws when they establish an out-of-state branch. Accordingly, this provision of federal law has had limited effect.
Overlapping regulation by the home and host states with respect to interstate branches of state-chartered banks has resulted in additional regulatory burden for state-chartered banks relative to national banks and federal savings associations. The regulatory burden has been more pronounced in the areas of consumer and fee regulation. National banks and federal savings associations in many instances have been able to avoid differing state consumer and fee regulations under federal law preemption. The MOU is intended to result in less regulatory burden for interstate branches of state-chartered banks by applying the regulatory scheme of the home state to the bank’s interstate branches.
Under Article III of the MOU, activities of an interstate branch will be governed by the home state law “to the same extent that federal law governs the activities of a branch in the host State of an out-of-state national bank.” Differences of opinion among the states regarding whether a host state law would be preempted under this standard are to be resolved by the reasonable best efforts of the state regulators. Each state’s attorney general retains jurisdiction to enforce violations of non-preempted regulation. Examination and other visitation of state-chartered banks and their interstate branches generally will be conducted by the home state regulator, except in certain instances, e.g., involving consumer complaints.