OFFICIAL LETTERHEAD STATIONERY FOR THREE SEPARATE 

AGENCIES 

THREE AGENCIES INCLUDE: 

FEDERAL DEPOSIT INSURANCE CORPORATION 

OFFICE OF THE COMPTROLLER OF THE CURRENCY 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

July 28, 2006 

Mr. John "Buz" Gorman 

General Counsel 

Conference of State Bank Supervisors 

1155 Connecticut Ave NW, 5th Floor 

Washington, DC 20036-4306 

Re: State Restrictions On the Establishment of 

Interstate De Novo Branches By Industrial Loan Companies 

Dear Mr. Gorman: 

You have asked our opinion regarding certain state legislation intended to restrict 

interstate de novo branching by industrial loan companies and industrial banks 

(collectively, "ILCs"). Specifically, we understand that some states have proposed or 

enacted legislation that prohibits an out-of-state ILC, but not other types of banks, from 

establishing a de novo branch in their states. These restrictions have particular 

significance for those states that generally permit out-of-state banks to establish de novo 

branches in their states. With respect to such states, the question has been raised whether 

these state ILC restrictions, if enacted, would affect the ability of other out-of-state banks 

to establish de novo branches in those states. 

Riegle-Neal Act 

The establishment of interstate de novo branches was first authorized under Federal law 

in 1994 when Congress enacted the Riegle Neal Interstate Banking and Branching 

Efficiency Act of 1994 ("Riegle Neal"). [Footnote 1. Begin Footnote 1 text. Pub. L. 

No. 103-328, 108 Stat. 2339 (1994). End Footnote 1.] Riegle Neal was generally 

intended to enhance and expand interstate banking and branching. In accordance with 

that purpose, it added provisions to both the Federal Deposit Insurance Act (the "FDI 

Act") and the National Bank Act authorizing both state banks and national banks to 

establish and operate interstate de novo branches under certain conditions. [Footnote 2. 

Begin Footnote 2 text. See id. Section 103. End Footnote 2.] 
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Letter to Mr. John "Buz" Gorman 

July 28, 2006 

Specifically, Riegle Neal added section 18(d)(4) of the FDI Act, 12 U.S.C. section 

1828(d)(4) ("Section 1828(d)(4)") regarding state nonmember banks and 12 U.S.C. 

section 36(g) ("Section 36(g)") regarding national banks. [Footnote 3. Begin text of 

Footnote 3. Id. Section 103(a), (b). End Footnote 3.] Section 36(g) applies to state 

member banks by virtue of section 9 of the Federal Reserve Act. [Footnote 4. Begin 

text of Footnote 4. See 12 U.S.C. section 321. End Footnote 4.] These sections 

generally provide that the appropriate Federal banking agency (i.e., the FDIC, for state 

nonmember banks; the Office of the Comptroller of the Currency, for national banks; 

and the Federal Reserve Board, for state member banks) may approve an application 

to establish and operate a de novo branch in a state (other than the bank's home state) 

in which the bank does not maintain a branch, if the host state has a law in effect that 

meets certain criteria. [Footnote 5. Begin text of Footnote 5. Both Section 36(g) and 

Section 1828(d)(4) include definitions of the terms "de novo branch," "home state," 

and "host state." See 12 U.S.C. §§ 36(g)(3)(A), (B) and (C), 1828(d)(4)(C), (D) and (E). 

End Footnote 5.] 

These criteria include the requirements that the host state have a law in effect 

that "(I) applies equally to all banks, and (II) expressly permits all out-of-state banks 

to establish de novo branches in such state." [Footnote 6. Begin text of Footnote 6. 

12 U.S.C. sections 36(g)(1)(A), 1828(d)(4)(A(i). End Footnote 6.] For purposes of this 

discussion, these criteria are collectively referred to as the "Host State Law Requirements." 

If a host state's law fails either of these requirements, the appropriate Federal banking 

agency would not be able to approve the establishment of a de novo branch in the host 

state by any out-of-state bank. [Footnote 7. Begin text of Footnote 7. Approval of such 

an application is also subject to certain additional conditions and provisions dealing 

generally with host state filing requirements, community reinvestment, and the adequacy 

of capital and management. See 12 U.S.C. sections 36(g)(1)(B), 1828(d)(4)(B). End 

Footnote 7.] 

For purposes of Section 1828(d)(4), the term "bank" includes any national bank and any 

state bank. [Footnote 8. Begin text of Footnote 8. See 12 U.S.C. section 1813(a)(1). 

End Footnote 8.] Under the FDI Act, a "State bank" is defined to include "any bank, 

banking association, trust company, savings bank, industrial bank (or any similar 

depository institution which the Board of Directors finds to be operating substantially 

in the same manner as an industrial bank) or other banking institution which - (A) is 

engaged in the business of receiving deposits, other than trust funds .. . and (B) is 

incorporated under the laws of any State or which is operating under the Code of 

Law for the District of Columbia (except a national bank)." [Footnote 9. Begin 

text of Footnote 9. 12 U.S.C. section 1813(a)(2). End Footnote 9.] Similarly, the 

term "bank" as used in Section 36(g) includes "trust companies, savings banks, or 

other such corporations or institutions carrying on the banking business under the 

authority of state law." [Footnote 10. Begin text of Footnote 10. 12 U.S.C. 

section 36(1). End Footnote 10.] Consequently, the term "bank" as used in both 

Section 36(g) and Section 1828(d)(4) includes LLCs. 

State Restrictions on De Novo Branching by ILCs 

As noted above, some states have enacted or proposed legislation that prohibits an out-ofstate ILC, but not other types of banks, from establishing a de novo branch in their states. 

Viewing these state ILC restrictions in light of the Host State Law Requirements, it is 
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Letter to Mr. John "Buz" Gorman 

July 28, 2006 

apparent that, if enacted, these restrictions would cause a host state's law to fail those 

requirements. If a state enacted these restrictions, the state's de novo branching law 

would not apply equally to all banks because the state's law would exclude one type of 

bank, i.e., ILCs. Similarly, the state's de novo branching law would not expressly permit 

all out of-state banks to establish de novo branches in such state because the state's law 

would not permit one category of out-of-state banks (i.e., out-of-state ILCs, generally, or 

in some state laws, Utah-chartered ILCs) to establish de novo branches in such state. 

Consequently, in our view, a state that enacted this type of de novo branching restriction 

on ILCs would cause its interstate de novo branching law to fail the Host State Law 

Requirements, and the appropriate Federal banking agency would not be permitted to 

approve the establishment of de novo branches in that state by any out of-state bank. 

This detennination, however, does not affect the validity of any interstate de novo 

branches approved under Section 36(g), Section 1828(d)(4) or section 9 of the Federal 

Reserve Act prior to the enactment of such restrictions. 

Another type of state law permits all out-of-state banks to establish de novo branches in 

the host state, but prohibits an out-of-state ILC (but not other types of banks) from 

establishing a branch on the premises of a commercial affiliate of the ILC. [Footnote 11. 

Begin text of Footnote 11. See, e.g., VA CODE ANN, section 6.1-232.3 (2006). 

End Footnote 11.] This type of state law does not apply equally to all banks and 

therefore fails the Host State Law Requirements. If, however, the state law expressly 

permits all out-of-state banks to establish de novo branches in the state, but also 

provides that neither banks chartered in the state nor out-of-state banks may establish 

or maintain a branch in the state on the premises of a commercial affiliate, [Footnote 12. 

Begin text of Footnote 12. See, e.g., MD CODE ANN, FlN. INST, sections 5-1003(a) 

and (b) (2006). End Footnote 12.] the state law would apply equally to all banks and 

would appear to comply with the Host State Law Requirements. While this latter type 

of law does impose a "locational limitation" on where any bank (whether an out-of-state 

bank or an in-state bank) may establish a branch within the state, this limitation does not 

treat any class of banks differently than any other banks contrary to the requirements of 

the Riegle Neal Act. 

We hope this response addresses your concerns. 

Sincerely, 

(Signatures of Agency Representatives) 

Julie L. Williams 

Chief Counsel/First Senior Deputy Comptroller 

Comptroller of the Currency 

Douglas H. Jones 

Acting General Counsel 

Federal Deposit Insurance Corporation 

Scott G. Alvarez 

General Counsel 

Board of Governors of the Federal Reserve System