In recent years, the American banking industry has seen a pronounced shift from state and federal savings institutions to state-chartered banks. When this happens, you usually learn about the changes by means of a published report from S&P Global. Account holders and clients are also notified in a more consumer-friendly manner that lets them know that the brand and the banking services as they know them will not change; however, customers need to know why the state-savings bank (SSB) designation is being removed.
The trend of national banks and federal savings institutions switching over to state charters has been growing significantly after the Great Recession, but it actually dates back to the turn of the century. The dilution of national bank powers is part of a regulatory framework that has been developing since the late 1980s, and many banking executives are eager to embrace this reduction while still holding onto their established brands.
For national banks, a state charter can translate into savings of tens of thousands of dollars worth of assessment fees each year, but this advantage is almost negligible when compared to the increased lending limits. Even though the current interest rate climate is not very attractive to retail banks, things are expected to improve and ease back into economic normalcy over the next few months, and this should be a good enough reason for banks to get competitive with larger loan amounts.
It should be noted that changing a banking license over to a state charter is not something that can be done for free; in fact, the filing fees by themselves are pretty high, and the paperwork as well as auditing processes require an entire legal team to complete. Banks that go through the state charter application process must have a solid business plan in place so that the regulatory and legal fees can be recovered in a reasonable amount of time. All in all, it does make sense to pursue a state charter these days.
When compared to being subject to examinations and oversight from the Office of the Comptroller of the Currency, dealing with the state banking commissioner tends to be easier and more straightforward. Local OCC offices are often overwhelmed with work, and they do not offer many opportunities for face-to-face meetings. State financial regulators are more likely to assign personnel to specific banks, thus making it easier to develop closer relationships.
Not all states have favorable banking regulations; some are known to be friendlier than others, which explains why you sometimes see a large concentration of banks within a jurisdiction. Not all states have a regulatory framework conducive to expansion, and this is something that bank directors should consider carefully because regulatory barriers can become headaches down the line.
Finally, federal savings banks that have issues pending OCC review should not attempt to begin the state charter application process. This red flag would be noticed by state adjudicators right away, thus stalling the application indefinitely. It is always better to clear the OCC issue first and obtain a document that certifies this clearance.
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