Interstate banking and the Federal Reserve : a historical perspective

Throughout U.S. history, politicians have looked warily at interstate banking, feeling that it would result in undue concentration of wealth and power. Early attempts at national banks bore out this claim, since both the First and Second Banks of the U.S. attempted to purchase influence and withhold favors from opponents. The Comptroller interpreted the National Banking Act of 1864 as prohibiting national banks from creating branches. Though this prohibition was later relaxed, the McFadden Act of 1927 limited branching to a single state, under state regulations. Some banks attempted to get around these restrictions by establishing "group banks" and "chain banks," the latter evolving into contemporary bank holding companies. Early Fed policy towards interstate banking was negative; Transamerica Corp.'s attempts to extend nationally met strong opposition, eventually resulting in legislation limiting bank holding companies' powers. The Fed eventually reversed its position, backing state laws which permitted interstate acquisitions. Many of these state laws require reciprocity from other states, or limit acquirers to a region.