Riegle Neal Interstate Banking Act - Explained
What is the Riegle Neal Interstate Banking Act?
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Table of ContentsWhat is the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994?What is the Expansion of the Community Reinvestment Act?Effect
What is the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994?
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 are allowed to have branches in any state as this would enhance competitiveness among chartered banks.
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What is 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.
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.