Dow Jones Newswires

  Illinois' State-Chartered Banks Enjoying
  Their New Powers

  By CHRISTOPHER BOWE
  Dow Jones Newswires

  CHICAGO -- State-chartered banks in Illinois are no longer the
  wallflower at the deregulation dance.

  That's because state banking regulators finally have interpreted a 1998
  amendment to Illinois' banking law, spelling out exactly which new
  activities state-chartered banks can engage in. The new powers level the
  playing field for state-charter institutions competing with savings & loans
  and other financial companies, banking industry players say.

  Through recent rulings called interpretive letters, the Illinois Office of
  Banks and Real Estate said state-chartered banks can now sell title
  insurance, develop real estate, sell data processing and transmission
  services, pledge assets to secure private deposits and buy Illinois real
  estate tax sale certificates.

  "A lot of bankers were looking for a list," Scott Clarke, assistant
  commissioner to the banks and real estate agency, said.

  The rulings put to rest questions over the banking law amendment,
  dubbed the "wild card provision." It gave state-chartered banks the
  powers to conduct the same activities as savings & loan institutions or
  national banks, but didn't spell out cogent examples, Clarke said. Under
  the regulators' interpretation, Illinois state banks actually have more
  freedom than national banks, which according to federal law can only sell
  insurance in towns of 5,000 people or less, he added.

  Once a world of finite, mutually-exclusive subsets, financial services
  companies and federally chartered banks increasingly have been allowed
  to reach into each other's bag of tricks. State-chartered banks, however,
  have been left at a competitive disadvantage as deregulation marched on.
  Concerns like Bloomington, Ill.-based insurance titan State Farm
  Insurance Cos., for example, now can offer savings accounts, noted
  Jeffrey Rodman, executive vice president of the Illinois Bankers
  Association.

  "We're ahead of most states," Rodman said. "We have a pretty
  competitive set of powers (now). It's all about having the full range of
  opportunities."

  Many state banks are eager to take the opportunity to sell title insurance,
  and some could become agents by next summer, Rodman said. Banks
  can only act as insurance agents and not the underwriters. Title
  insurance protects property owners and mortgage lenders against losses
  caused by something that happened years earlier, such as a forged deed
  somewhere in the passage of title.

  Because mortgages are a core business for many state banks, title
  insurance is a natural extension for them, Rodman said. "It's just a logical
  piece to be involved with," he said.

  Furthermore, a state bank's subsidiary now can develop real estate, given
  a development doesn't exceed 15% of the bank's total assets. Although the
  developments are limited mostly to housing, banks may be able to build
  small retail developments in order to boost a community's infrastructure,
  Rodman said.

  State charter banks or any of their units cannot sell real estate as a broker,
  Clarke said.

  Banks also can profit from selling data processing and transmission
  services. For a long time, state banks could only sell some "excess
  capacity" of their data services, unlike the less-regulated thrifts, Clarke
  said.

  For instance, banks can now provide abstracting and collection agency
  services and human resource administration help, Clarke said. Using a
  previous ruling, one rural bank in southeastern Illinois even has become an
  Internet service provider, he added.