BILL ANALYSIS C.S.H.B. 889 By: Marchant 03-06-95 Committee Report (Substituted) BACKGROUND Congress recently passed and the President signed the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal Act"). As is evident from its name, it authorizes interstate banking throughout the United States within one year of enactment. At the same time, however, it creates interstate branching unless a state chooses to opt out before June 1, 1997. Under Texas law, out-of-state holding companies may acquire banks in Texas. Thus, interstate banking is already present in Texas. However, the current law was carefully written to ensure that a Texas bank charter be maintained and managed under a Texas Board. Thus under Texas law, any banking organization choosing to come to Texas may do so providing that they maintain a Texas charter. Under interstate branching, those same out-of-state bank holding companies could simply convert their operations in Texas to branches of their operations elsewhere. This could eliminate local boards of directors and reduce local input. If permitted, branches could be acquired in a variety of ways: merger with existing banks, purchase of existing facilities, or de novo chartering. Interstate branching presents the potential for significant consolidation of institutions and a potential reduction of local boards of directors, local officers, and local service to the communities. PURPOSE To implement provisions in the Riegle-Neal Interstate Banking and Branching Efficiency Act permitting each state to opt out of interstate branching. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Defines "branch," "domestic bank," and "out-of-state bank." SECTION 2. Prohibits interstate mergers and branches. (1) Provides that a domestic bank may not engage in a merger transaction involving an out-of-state bank; (2) provides that an out-of-state bank may not establish a de novo branch in this state or acquire a branch in this state by purchase or other means; (3) provides that a domestic bank may not establish a de novo branch in a state other than this state or acquire a branch in a state other than this state by purchase or other means. SECTION 3. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The introduced version of HB 889 proposed amendments to the Banking Code Act of 1943. The Banking Code has been recently revised and is proposed legislation before the Legislature at this time. If the Banking Code Act is approved by the Legislature, the introduced version of HB 889 would have made amendments to an obsolete Code. Therefore, a more generic committee substitute was drafted to ensure the proper placement of this Act into either the Banking Code of 1943 or the new Banking Code should it be approved. SUMMARY OF COMMITTEE ACTION HB 889 was considered by the committee in a public hearing on March 1, 1995. The following people were recognized by the Chair to testify before the committee. The following people testified in favor of the bill: Chairman Marchant; Cleve T. Breedlove representing the Independent Bankers Association of Texas (IBAT); Bernie Francis representing Business Control Systems, Inc.; David R. Seim representing IBAT; Durwood Tucker representing the Texas Farm Bureau; Charles Carter representing the Independent Cattlemens Association of Texas; Robert Howden representing the National Federation of Independent Business/Texas (NFIB); Christine Mitchell representing NFIB/Texas; Shayne Woodard representing the Texas Association of Builders; and J. Pat Hickman representing IBAT. Karen Neeley representing IBAT. The following people testified against the bill: Fredrick M. (Rick) Smith representing Community Bank of Waco and the Texas Bankers Association (TBA); Harvey R. Mitchell representing Bank One, Texas; John M. Heasley representing TBA; Lee Rona McKinney representing Bank One, Texas; Jerry Killingsworth representing himself; Robert H. Sewell representing Equitable Bank and TBA; Gene D. Wyatt representing himself; Tom Daniels representing Comerica Bank Dallas and himself; and Merriman Morton representing Texas Commerce Bank, Austin. Chairman Marchant closed. HB 889 was left pending. HB 889, which was pending business before the committee, was considered by the committee in a public hearing on March 6, 1995. Rep. Patterson offered a complete committee substitute for the bill which was adopted without objection. The motion to report HB 889 favorably as substituted, with the recommendation that it do pass and be printed, prevailed by the following vote: 6 Ayes, 0 Nays, 0 PNV, 3 Absent.