Riegle Neal Interstate Banking Act – Definition

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Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 Definition

State-chartered banks were initially governed by lenient laws that made these banks operate in relaxed modes which was void of competition. In 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 [IBBEA] was passed and this act awaken the relaxed laws governing chartered banks. The amendment of the laws restored competition in this sector. The 1994 IBBEA also cleared the restrictions on opening bank branches across state. With the act, banking institutes ars allowed to have branches in any state as this would enhance competitiveness among chartered banks.

A Little More on the Expansion of the Community Reinvestment Act

With the passage of IBBEA, the Community Reinvestment Act was also expanded. Three sections of IBBEA cater for its expansion, these are sections 107, 109 and 110. Section 107 stipulates factors needed for equalizing competitive opportunities for United states and foreign banks. One of the factors stated in this section is meeting community credit needs.

Section 109 caters for prohibition against deposit production offices. It provides the basic guidelines for meeting credit needs, limitation on out-of-state loans among others.

Section 110 expanded community Reinvestment Act of 1977 through Community Reinvestment Act evaluation of banks with interstate branches. This is the evaluation of compliance of banks with branches across different states.

Effect

Although the effects of IBBEA on banks seem insignificant, newly established banks invested less and used little external debt financing. This however means losses for newly-formed or small banks. IBBEA established a greater level of competition among banks and this led to financial constraints for some firms. Also, the streamlined consolidation process that was being used by state chartered banks had significant effect. These effects of IBBEA are however said to reduce as the banks or chartered institutes grow.

References for Riegle-Neal Interstate Banking Act

Academic Research on Riegle-Neal Interstate Banking Act

RiegleNeal interstate banking and branching efficiency act of 1994, Medley, B. (2013). Federal Reserve History. Last modified November, 22. Before the IBBEA was signed into law by Bill Clinton in 1994, federal lawmakers made attempts to remove restriction on creating branches in many states, but these attempts were unproductive.  In the early 1980s and 1990s, states gradually began to reduce restrictions on interstate banking, the changes certain laws that permitted out-of-state banks. With the signing of IBBEA in 1994, this law provided unified rules for chartered banks in different states. The law also removed restrictions on banks opening branches across states, this removal however led to the emergence of laws such as Mc Fadden Act of 1927 which addressed worries about lack of supervision for financial institutions that open branches.

The RiegleNeal Interstate Banking and Branching Efficiency Act of 1994: Responding to Global Competition, Mulloy, P., & Lasker, C. (1995). J. Legis., 21, 255. This paper examines the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The signing of this act into law made way for competition in the banking industry and the creation of larger banks. This paper examines how the passage of the law is a response to global competition among banks or financial institutions, given the fact that the law completely remove geographic restrictions placed on banks and their expansion. This study identifies how IBBEA has created a more efficient and systematic banking system.  It also analyse competitiveness in banks and how this has enhanced a better and proficient banking system.

Interstate Banking and Branching Under the RiegleNeal Act of 1994, Rollinger, M. D. (1996). Harv. J. on Legis., 33, 183. This paper investigates interstate banking and branching as stipulates in the IBBEA act of 1994.  It surveys past historical records of regulation in banking institutions and diverse attempts of lawmakers to remove restrictions on bank branching in diverse geographical regions.  This article examines Riegle-Niele act as a legislation that makes provision for interstate bank branching and the effects of this legislation on the banking industry. Issues and controversies that emanated from the passage of this Act and the potential impacts on competition in banking institutions are investigated. This article also considers how competition in the banking industry can cause the extinction of local or community banks.

The RiegleNeal Interstate Banking and Branching Efficiency Act of 1994: Progress Toward a New Era in Financial Services Regulation, Stritzel, S. (1995). Syracuse L. Rev., 46, 161. This paper is a study of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and how the passage of this act is an advancement towards a new era in banking regulation. This paper presents a historical background and perspective on banking regulation in the United States which include bank branching restrictions in the banking system. This paper further presents a holistic review of the 1994 IBBEA and its role in interstate banking and branching. The provisions of the Act on interstate ranching by foreign banks are also explored.

The impact of interstate banking and branching reform: evidence from the states, McLaughlin, S. (1995). This paper is a study carried out by McLaughlin on the impacts of interstate banking and branching reform. This study use findings from states practising interstate banking and branching. The interstate banking and branching reform is largely associated with the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, this paper examines the effects of this legislation on banking and branching practises of financial institutions. Evidence are drawn from states and the study reveals that the reform will have a positive impact on consolidation in the industry but nationwide banking might not be achieved on a spot.

 

The banking industry after the RiegleNeal Act: Re-structure and overall performance, Nippani, S., & Green Jr, K. W. (2002). The Quarterly Review of Economics and Finance, 42(5), 901-909. This paper studies the impacts of restructuring of the banking industry due to the passage of the 1994 IBBEA law. Upon its passage, IBBEA allows holding companies to expand across states and also acquire banks in any state. This paper examines the impacts of this restructuring on the overall performance of banks and financial institutions. However, the impacts of this legislation on the performance of banking industry was examined by comparing their performances before IBBEA was passed. In general, the study finds out that the impacts of IBBEA on performance in banking industry is quite insignificant.

Expansion of the Banking Industry under the RiegleNeal Interstate Banking and Branching Efficiency Act of 1994: Is the Banking Industry Headed in the Right …, Tart, C. L. (1995). Wake Forest L. Rev., 30, 915. This paper examines the growth and expansion of the banking industry after the Riegle-Neal Interstate Banking and Branching Efficiency Act was signed in 1994. The IBBEA has succeeded in removing interstate bank branching restrictions which has led to the expansion of many banking institutions. This paper however examines whether this expansion is right for banking industry or not, it aims to study whether the banking industry is heading towards the right direction with this expansion. It also investigates how market forces and technology advancements have driven the banking industry toward geographical expansion. This paper presents comments on the expansion of the banking industry.

The interstate banking and branching efficiency act of 1994: A wealth event for acquisition targets, Carow, K. A., & Heron, R. A. (1998). Journal of Banking & Finance, 22(2), 175-196. This journal examines the impact of the interstate banking and branching efficiency act on wealth acquisition of Bank Holding Companies. This study reveals that IBBEA positively affect the wealth and acquisition of targets using evidence collected from the survey of large Bank Holding Companies (BHCs). This study also include a cross-sectional examination of wealth returns and target acquisitions by BHCs. The study however proves that states that prohibit interstate branching has higher wealth returns that states that allow interstate branching.

Consolidation in the US banking industry since RiegleNeal, Heiney, J. (2011). Journal of Business and Economics Research, 99, 71-78. This is a study of consolidation in the United States banking industry since the passage of the 1994 IBBEA. Consolidation involves a process of making an entity or industry become stronger. This paper examines whether IBBEA has been able to accelerate consolidation in the US banking industry through the removal of interstate bank branching restrictions and expansion of the banking industry. With previous analysis of the Riegle-Neal bank branching, the paper found a rise in the level of consolidation in the US banking industry. It also present the effects of the act when it was first passed and when it became fully effective.

Branch banking, economic diversity and bank risk, Shiers, A. F. (2002). The Quarterly Review of Economics and Finance, 42(3), 587-598. Interstate banking and bank branching is not without any effects on the banking industry. This paper examines the effects of geographical diversity of banks and expansion of banks across states on commercial banks. Although, when IBBEA was passage and allows banks to engage in interstate banking, there was an argument that this geographical diversity of banks will reduce bank risk.  However, after a close examination of this argument, it was revealed that bank risk can only be reduced in regions with economic diversity. This paper also investigates interstate bank branching and its consequences in different states. It also studies the effects of economic diversity on bank risk.

The changing landscape of american banking: the impact of RiegleNeal, Matasar, A. B., & Heiney, J. N. (1999). International Advances in Economic Research, 5(1), 93-107. Upon the passage of the 1994 IBBEA which became fully effective in 1997, there are significant changes in landscape of American banking industry, this paper studied this changing landscape. With the removal of interstate bank branching restrictions, it was widely held that Bank holding Companies (BHCs) will use this geographical freedom to drive expansion across states through mergers, acquisitions and some other techniques. The expansion and geographical freedom would also have effect such as increase fees for smaller customers including individuals, businesses, and rural communities. This paper however study the changes in number and size of banks due to the impacts of IBBEA on the American Banking Industry.

 

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