A comparative analysis of the US and EU retail banking markets - Wsbi

Another important factor in the choice between a
state charter and a federal charter are the chartering
costs. Currently, national banks are charged higher
assessment costs annually than are state banks in
most states. In fact, some states, such as Georgia 159 ,
charge less than half of what a comparably sized
national bank or thrift would pay the OCC or the
OTS respectively. Others charge slightly more than
half of the amount charged by the corresponding
federal agencies, such as the State of Louisiana 160 .
More generally, many states promote state chartering
of banks and try to attract credit institutions by
highlighting the difference between the fees assessed
by their Banking Department and those charged by
the federal supervisors (OCC or the OTS) 161 .
Worthy of note on the subject is the view that has
been expressed by some in the US that state banks
actually benefit from “federal subsidies”.
This view stems from the fact that apart from being
supervised at the state level, state-chartered banks
also have a primary federal supervisor, as stated
above (which is the Federal Reserve in the case of
state member banks and the FDIC in the case of
state non member banks), yet these federal agencies
do not receive specific funding to perform these
supervisory duties. The FDIC for example funds its
own operations on the basis of premiums and
earnings from the deposit insurance fund, paid both
by federally-chartered and state-chartered institutions.
Given that an important part of this funding goes
towards the supervision of state-chartered banks,
some would argue that federally-chartered banks
effectively pay for part of the supervision of statechartered
banks 162 . The same argument goes for the
funding of the supervisory operations of the Federal
Reserve with regard to Member State-chartered banks.
This view is however not shared by all. America’s
Community Bankers (ACB) 163 for example are of the
opinion that “state banks should not have to pay the
cost of their FDIC examinations”, as “the FDIC should
not be required to subsidise the operating costs of
the OCC or of the OTS”. The ACB indicates that
examination fees will “increase costs and encourage
unnecessary or duplicative examinations”. In addition,
they point out that “the new fees will reduce funds
available for lending to local communities and will tilt
the dual state/federal system of bank regulation
further toward federal domination by increasing the
relative appeal of a national bank charter” 164 .
Other factors which are often considered when
choosing a charter concern dividends, other fees
(other than the already mentioned chartering
assessments) and lending limits for state-chartered
banks, for the following reasons:
- Generally, it is observed that state laws governing
the payment of dividends are less restrictive than the
provisions on dividends relating to national banks 165 .
- Similarly, the legal lending limit for a national
bank is in general stricter than for a state bank.
Currently, the OCC rules permit national banks to
make loans to a single borrower up to an amount
equivalent to 15% of their unimpaired capital and
surplus 166 . National banks may extend that credit
by another 10% of capital and surplus to the
same borrower if the amount of the loan that
exceeds 15% is secured by “readily marketable
collateral”. On the other hand, the lending limits
for state-chartered banks vary substantially from
one state to the other, with differences in terms
of lending limit, of the definition of a single
borrower, and of exceptions for fully collateralised
loans. In several states, state-chartered banks are
entitled to a legal lending limit of 25% of their
capital. In Kansas, for example, the lending limit
mounts up to 25% and 35% in the case of loans
secured by real estate 167 .
159 Information concerning the department of banking and finance of the State of Georgia, available at: http://www.ganet.org/dbf/chartering_a_bank.html.
160 According to the Louisiana Office of Financial Institutions (http://www.ofi.state.la.us), OFI charges $25,000 for an assessment of a bank or a thrift with
average assets of $100 million, compared to $44,700 charged by the OCC and $33,870 charged by the OTS respectively.
161 Examples of this include the States of Arkansas, Tennessee, Florida, Texas and Missouri in the following respective websites: (http://www.accessarkansas.org/
bank/benefits_advantages.html), (http://tennessee.gov/financialinst/charter.html), (http://www.fldfs.com/ofr/banking/state_charter.htm), (http://www.banking.state.tx.us/
CORP/CHARTER/benefits.htm#Lower%20Costs), (http://www.missouri-finance.org).
162 Mr. John D. Hawke, Jr., Comptroller of the Currency argued that the fact that 52% of the premiums paid to rebuild the Bank Insurance Fund originate from
national banks implies that 52% of the costs for supervising non Member State-chartered banks at the federal level is paid by national banks. This, whereas
the supervisor of national banks (OCC) is funded entirely by the assessments paid by the national banks. See J.D. Hawke Jr., “Deposit Insurance Reform and
the Cost of Bank Supervision”, Exchequer Club Washington DC, 20/12/2000.
163 America's Community Bankers represents the nation's community banks of all charter types and sizes.
164 America’s Community Bankers, 2005 Policy Positions, page 71.
165 The restrictions on a national bank's ability to pay dividends arise principally from two National Bank Act sources: 12 U.S.C. § 60 and 12 U.S.C. § 56. Those
acts place a recent earnings limitation on the payment of dividends by a national bank by requiring prior OCC approval of a dividend if the total of all dividends
declared by a national bank in any year exceeds the total of its "net profits" of that year combined with net profits of the two preceding years, less any
required transfer to surplus. The OCC further restricts the ability of national banks to pay dividends on common stock by preventing national banks from
including provisions for loan losses in "net profits," and thus, in the funds available for payment of dividends.
166 12 CFR (Code of Federal Regulations) Part 32.
167 http://www.osbckansas.org/AbouttheOSBC/advantge.html.
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