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Financial Services Law Insights and Observations

Dallas Fed Explores Reasons Why Community Banks are “Flipping to State Charters”

Federal Issues Federal Reserve Community Banks

Federal Issues

Released earlier this month, the latest issue of the Federal Reserve Bank of Dallas’ Quarterly Publication Financial Insights, takes a closer look at the causes behind a recent trend in community banks opting to change from a national to a state charter. As explained in the article—entitled Community Banks Flipping to State Charters—“[v]ery few commercial banks—only about 1 percent—change charters in any given year,” but, “of those that do change charters, twice as many are choosing a state charter.”  Indeed, according to the authors, “[o]f the 780 community banks that changed charters between 1995 and 2015, 529 left the control of the [OCC].” Having analyzed data from the National Information Center (NIC), the authors conclude that motivations for changing to a state charter vary broadly “from cost to culture,” but that “[b]roadly speaking, charter choice is generally a question of whether the higher assessment cost often associated with a national charter is offset by the benefits of operating under a single set of laws and regulations.”