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Interstate Banking to Be Eased With Plan for Interstate Branching

If bill is passed by Congress, analysts see cost savings to customers

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LIKE many large banks, U.S. Bancorp does business in more than one state. But a complex web of federal and state rules means that the Portland, Ore., company must operate as a separate corporation in all five of the states it serves. Each corporate entity must have its own chief officers, board of directors, and regulatory audits.

Soon that may change, not only for this leading Northwest bank, but also for most of the industry.

After years of talk, momentum is gathering in Congress to allow banks to create branching systems across state lines. The move would not entirely do away with the dual system of state and federal regulations; states would be free to opt out of the system or set some of the rules for bank entry within the system.

The measure holds out the possibility of significant cost savings for banks and improved service to customers. Analysts say it will also accelerate a healthy trend of consolidation among the nation's 11,000 banks. The United States, long wary of concentrating financial powers in too few hands, is considered ``overbanked'' relative to other nations. By encouraging banks to expand across several regions (as few banks do today), big banks also could be protected from sharp regional downturns, such as the one that occurred in New England in 1989-90.

Few Banks have calculated the potential cost savings from interstate branching. NationsBank, based in North Carolina, projects its savings at $50 million a year, about 1 percent of noninterest expenses. Banks are already streamlining within the current system, trying to satisfy the letter of the law at minimum cost.

Even if Congress overturns the bar to branching, contained in the Depression-era McFadden Act, banks will still have to balance cost-cutting with a localized, ``close-to-the-customer'' approach, says Phyllis Campbell, president of U.S. Bank of Washington, a Seattle-based subsidiary of U.S. Bancorp.

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