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Chartering a New Course

By: Kari English

The latest trend in banking appears to be converting from a national charter to a state charter. As of April 12, 20 banks had converted from national to state charters this year, according to FDIC data. Compare this to the same time period in pre-recession 2006 when only 12 banks converted to state charters and that is a 67 percent increase.

As various banks have made their conversion announcements, several reasons have been cited. One bank said the Dodd-Frank Act has removed most of the benefits of operating under a savings bank charter, such as federal preemption and consolidated bank and bank holding company supervision.

The significant cost difference in maintaining a national charter versus a state charter was also noted as another reason for switching. For example, the $115.7 million asset Verus Bank in Derby, Kan., switched its federal charter for a state one last year. “The change will save $30,000 a year in fees alone,” the bank’s president, Kyle Russell, said in a Wichita Eagle newspaper article.

Dealing with a local regulator who lives in and, therefore, understands the market area was cited as another reason for switching. But critics of this reasoning say banks are just looking for an easier regulator. A recently published study by the National Bureau of Economic Research supports this criticism. “Federal regulators are significantly less lenient, downgrading supervisory ratings about twice as frequently as state supervisors. Under federal regulators, banks report higher nonperforming loans, more delinquent loans, higher regulatory capital ratios and lower ROA,” the study states. “There is a higher frequency of bank failures and problem-bank rates in states with more lenient supervision relative to the federal benchmark.”

As if to also refute this reasoning, in his first speech the newly confirmed Comptroller of the Currency Thomas Curry mentioned that most of the OCC’s examiners “work from one of the more than 60 offices the OCC maintains around the country, and they clearly know those local markets as well as anyone.

“From our position as a nationwide regulator,” Curry went on to say in his speech, “the OCC brings significant resources and expertise to the table. But our local presence in communities throughout the country provides an equally important perspective.”

If you are thinking of switching from a national to a state charter — for whatever reason — click on links below to find articles and information about converting, as well as announcements from a few banks that have already made the switch.

Charter Conversion Articles and Information

Banks Announce They Are Converting Charters

Kari English is senior editor of BankNews.

Copyright (c) May 2012 by BankNews Media