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WILMARTH 4/1/2011 1:11 PM 988 OREGON LAW REVIEW [Vol. 89, 951 for taxpayer-funded protection of creditors of SIFIs during future financial crises. A. Dodd-Frank Modestly Strengthened Existing Statutory Limits on the Growth of LCFIs But Did Not Close Significant Loopholes Congress authorized nationwide banking—via interstate branching and interstate acquisitions of banks by BHCs—when it passed the Riegle-Neal Interstate Banking and Branching Act of 1994. 146 To prevent the emergence of dominant megabanks, the Riegle-Neal Act imposed nationwide and statewide deposit concentration limits (“deposit caps”) on interstate expansion by large banking organizations. 147 Under the Riegle-Neal Act, a BHC may not acquire a bank in another state, and a bank may not merge with another bank across state lines, if the resulting banking organization (together with all affiliated FDIC-insured depository institutions) would hold (1) 10% or more of the total deposits of all depository institutions in the United States or (2) 30% or more of the total deposits of all depository institutions in a single state. 148 Unfortunately, the Riegle-Neal Act’s nationwide and statewide deposit caps contained three major loopholes. First, the deposit caps applied only to interstate bank acquisitions and interstate bank mergers, and the deposit caps therefore did not restrict combinations between banking organizations headquartered in the same state. Second, the deposit caps did not apply to acquisitions of, or mergers with, thrift institutions and industrial banks because those institutions were not treated as “banks” under the Riegle-Neal Act. 149 Third, the deposit caps did not apply to acquisitions of, or mergers with, banks 146 Riegle-Neal Interstate Banking and Branching (Riegle-Neal) Act of 1994, Pub. L. No. 103-328, 108 Stat. 2338. 147 See H.R. REP. NO. 103-448, at 65–66 (1994) (explaining that the Riegle-Neal Act “adds two new concentration limits to address concerns about potential concentration of financial power at the state and national levels”), reprinted in 1994 U.S.C.C.A.N. 2039, 2065–66. 148 Riegle-Neal Act §§ 101, 102, 108 Stat. at 2340, 2345 (codified as amended in 12 U.S.C. §§ 1831u(b)(2), 1842(d)(2)). The Riegle-Neal Act permits a state to waive or relax, by statute, regulation, or order, the 30% statewide concentration limit with respect to interstate mergers or acquisitions involving banks located in that state. See 12 U.S.C. §§ 1831u(b)(2)(D), 1842(d)(2)(D). 149 See Order Approving the Acquisition of a Savings Association and an Industrial Loan Company, 95 Fed. Res. Bull. B13, B14 n.6 (Mar. 2009) [hereinafter FRB Bank of America and Merrill Order] (noting that thrifts and industrial banks “are not ‘banks’ for purposes of the [Riegle-Neal] Act and its nationwide deposit cap”).
WILMARTH 4/1/2011 1:11 PM 2011] The Dodd-Frank Act 989 that are “in default or in danger of default” (the “failing bank” exception). 150 The emergency acquisitions of Countrywide, Merrill, Washington Mutual (WaMu), and Wachovia in 2008 demonstrated the significance of the Riegle-Neal Act’s loopholes and the necessity of closing them. Based on the “non-bank” loophole, the FRB approved Bank of America’s acquisitions of Countrywide and Merrill even though (1) both firms controlled FDIC-insured depository institutions (a thrift, in the case of Countrywide, and a thrift and industrial bank, in the case of Merrill) and (2) both transactions allowed Bank of America to exceed the 10% nationwide deposit cap. 151 Similarly, after the FDIC seized control of WaMu as a failed depository institution, the “non-bank” loophole enabled the FDIC to sell the giant thrift to Chase even though the transaction enabled Chase to exceed the 10% nationwide deposit cap. 152 Finally, although the FRB determined that Wells Fargo’s acquisition of Wachovia gave Wells Fargo control of just under 10% of nationwide deposits, the FRB probably could have approved the acquisition in any case by designating Wachovia as a bank in danger of default. 153 As a result of the foregoing acquisitions, Bank of America, Chase, and Wells Fargo each surpassed the 10% nationwide deposit cap in October 2008. 154 To prevent further breaches of the Riegle-Neal Act’s concentration limits, I proposed that Congress should extend the 150 12 U.S.C. §§ 1831u(e), 1842(d)(5). 151 See Order Approving the Acquisition of a Savings Association and Other Nonbanking Activities, 94 Fed. Res. Bull. C81–C82, C83 n.13 (Aug. 2008) (approving Bank of America’s acquisition of Countrywide and Countrywide’s thrift subsidiary, even though the transaction resulted in Bank of America’s ownership of 10.9% of nationwide deposits); FRB Bank of America and Merrill Order, supra note 149, at B13–B14, B14 n.6 (approving Bank of America’s acquisition of Merrill and Merrill’s thrift and industrial bank subsidiaries, even though the transaction resulted in Bank of America’s ownership of 11.9% of nationwide deposits). 152 Joe Adler, Thrift M&A Could Suffer as Frank Slams ‘Loophole,’ AM.BANKER, Dec. 10, 2009, at 1. 153 See Statement by the Board of Governors of the Federal Reserve System Regarding the Application and Notices by Wells Fargo & Company to Acquire Wachovia Corporation and Wachovia’s Subsidiary Banks and Nonbanking Companies, 95 Fed. Res. Bull. B40, B41–42 (Mar. 2009) (determining that “the combined organization would not control an amount of deposits that would exceed the nationwide deposit cap on consummation of the proposal”); id. at B48 (concluding that “expeditious approval of the proposal was warranted in light of the weakened condition of Wachovia”). 154 See Matt Ackerman, Big 3 Deposit Share Approaches 33%, AM. BANKER, Oct. 28, 2008, at 16 (reporting the nationwide deposit shares for Bank of America, Chase, and Wells Fargo as 11.31%, 10.20%, and 11.18%, respectively).
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