By Jack Hopkins
Several state community banking associations in the Great Lakes region and beyond have celebrated 50th anniversaries this year and in 2023, pointing to an outbreak of industry organization a half-century ago.
While the formation of these state associations in the mid-1970s was part of a debate over banking policy that lasted years, these community banking-focused groups remain vital given the prominence of financial services in state capitals and Washington, D.C.
A Half-Century of Service
1974 was a banner year for state community banking associations in the Great Lakes region. The community banking associations of Michigan, Illinois, Ohio, and New York State all got their start that year.
Further, the Community Bankers of Pennsylvania—now the Pennsylvania Association of Community Bankers—was formed in 1973. And other state community banking associations, including the Independent Bankers Association of Texas in 1974 and the Independent Community Bankers of Colorado in 1973, were also formed in those years.
Clearly, community bankers at the time were actively banding together in the spirit of 1930, when a group in Minnesota passed a hat for donations to form what would become the Independent Community Bankers of America. So what was it about the 1970s that prompted community bankers in these states to form new associations dedicated exclusively to community banking?
Supporting Local Banking Amid Policy Upheaval
As the community bankers who have been around long enough might remember, the driving force behind this flurry of state activity was a combination of policy debates over branch and interstate banking as well as a related rise in merger activity.
Branching, multi-state banking, and bank holding companies dominated the debate over banking policy in the postwar era. At the federal level, Congress passed the Bank Holding Company Act of 1956 to codify prohibitions on interstate banking while applying regulatory standards to bank holding companies—a then-novel arrangement used to diversify into nonbank activities and avoid branching restrictions.
After financial institutions used an oversight in the law that allowed single-bank holding companies to avoid regulation by the Federal Reserve, Congress closed the loophole with amendments to the act in 1970 that also reaffirmed the separation of banking and commerce.
Of course, changes in banking activity were underway across the country, and state legislatures were responding. In Michigan, for instance, the state began
to allow multibank holding companies in 1971, which weakened its branching restrictions and led to a decline in the number of independent banks, creating an increasingly concentrated banking system in the Wolverine State.
And while a 1970 rewrite of the Illinois Constitution preserved the state’s prohibition on branch banking, new banking laws in the Land of Lincoln began to relax branching restrictions by 1976 and ultimately abolished branching prohibitions in 1987.
Meanwhile, Ohio community bankers credit the formation of their state association to a surge in merger activity in the Buckeye State. Specifically, the association was designed to use group purchasing to obtain products and services at a competitive price, which would help its members remain competitive, slow the merger rate, and preserve a strong community bank presence in Ohio.
Ongoing Advocacy Role
While the decades-long debate over branch and interstate banking largely concluded with the signing of the federal Riegle-Neal Act in 1994, state community banking associations in the Great Lakes region and elsewhere remain no less critical to today’s policy discussions. With debates over public banking, credit union policy, cannabis-related businesses, and other issues consuming state capitals from Albany to Lansing to Springfield and beyond, state-based representation of the community banking is as important as ever.
State community banking associations are also critical partners to ICBA on a variety of federal issues, many of which pose critical threats to community banks coast to coast. In addition to coming to Washington for meetings with policymakers as part of state fly-ins and ICBA’s Capital Summit, the state associations are essential in conveying a united community bank voice on issues such as the Consumer Financial Protection Bureau’s 1071 and 1033 rules, the farm bill, check fraud, climate guidance, credit card routing restrictions, and more.
In fact, the state associations have proven essential to several important policy successes in recent years, including the FDIC’s special assessment exemption for the vast majority of community banks and state restrictions on acquisitions of community banks by tax-exempt credit unions.
Ultimately, while many of the policy debates that led to a wave of new state associations 50 years ago have passed, these organizations remain as vital as they are committed to independent community banking.
About the Author
Jack Hopkins is ICBA chairman-elect and president and CEO of CorTrust Bank in Sioux Falls, S.D.