Could Maryland flatly ban an out-of-state bank from buying a Maryland bank in the 1980s?

Plain-English summary

Maryland's Bank Commissioner asked whether state law prohibited Wilmington Trust Company, a Delaware bank, from acquiring Maryland State Bank. Maryland's Financial Institutions Article flatly barred a "foreign bank" from becoming a "bank holding company" in the state, and on its face that provision covered the proposed transaction. But Maryland State planned to sell off its entire commercial loan portfolio and stop making commercial loans before the deal closed, which meant it would no longer meet the federal Bank Holding Company Act's two-part definition of a regulated "bank" (an institution that both takes demand deposits and makes commercial loans). Federal regulators had already blessed this "nonbank bank" structure in several similar cases. The opinion concluded that once the federal interstate-acquisition rule (the Douglas Amendment) no longer applied to the deal, Maryland's blanket ban on out-of-state ownership could not survive Commerce Clause scrutiny, because it singled out banks based on where their main operations were located without any local regulatory interest that couldn't be handled through the state's separate stock-acquisition approval process.

Currency note

This opinion was issued in 1984. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could Maryland flatly ban an out-of-state bank from buying a Maryland bank in the 1980s?
According to this 1984 opinion, no, not as an absolute ban. The Attorney General concluded that Maryland's flat prohibition on a "foreign bank" becoming a bank holding company here could not constitutionally be applied to the transaction at hand, because it discriminated against out-of-state buyers in a way the Commerce Clause forbade.

What was a "nonbank bank" and why did it matter here?
The opinion explained that under the federal Bank Holding Company Act, an institution only counted as a regulated "bank" if it both took demand deposits and made commercial loans. By selling off its commercial loan portfolio, Maryland State Bank fit into what the opinion called a "loophole," taking the transaction outside the federal law that would otherwise have controlled it.

Did federal banking law block this kind of interstate bank purchase instead?
The opinion found that the federal Bank Holding Company Act's interstate restriction, the Douglas Amendment, did not apply here, because Maryland State Bank, having given up commercial lending, would not be a "bank" under the federal Act's definition.

Did this opinion mean the acquisition automatically went through?
No. The opinion addressed only the constitutional validity of Maryland's absolute ban. The transaction still had to go through the Bank Commissioner's separate stock-acquisition review process under FI §3-314, which the opinion noted applied evenhandedly to in-state and out-of-state buyers alike.

Background and statutory framework

Maryland's Financial Institutions Article generally required anyone acquiring a controlling stake in a Maryland commercial bank to apply to the Bank Commissioner for approval under FI §3-314, a process the Commissioner could use to screen for anticompetitive effects or safety-and-soundness concerns. Separately, FI §12-204 imposed an absolute bar on any "foreign bank" becoming a "bank holding company" in Maryland, and FI §12-207 restricted a "foreign banking corporation" from operating a general banking business in the state. The opinion measured that state-law ban against the federal Bank Holding Company Act, whose Douglas Amendment (12 U.S.C. §1842(d)) restricted interstate bank acquisitions unless a state's laws specifically authorized them, but whose coverage turned on the Act's two-part definition of "bank" in 12 U.S.C. §1841(c). Because Maryland State proposed to stop making commercial loans, the Federal Reserve Board's own precedents treated similarly restructured institutions as falling outside that definition, removing the transaction from the Douglas Amendment's reach and requiring a traditional Commerce Clause analysis of Maryland's own ban under cases like Lewis v. BT Investment Managers, Inc.

Citations

Statutes:

• FI §3-314 (Bank Commissioner approval process for stock acquisitions of a commercial bank)
• FI §12-204 (bar on a "foreign bank" becoming a "bank holding company" in Maryland)
• FI §12-201 (definitions of "foreign bank," "bank holding company," and "foreign banking corporation")
• FI §12-207 (restriction on a foreign banking corporation conducting a general banking business in Maryland)
• 12 U.S.C. §1842(d) (Bank Holding Company Act §3(d), the "Douglas Amendment" restricting interstate acquisitions)
• 12 U.S.C. §1841(c) (Bank Holding Company Act §2(c) definition of "bank")
• 12 U.S.C. §1846 (Bank Holding Company Act §7, reservation of state regulatory authority)
• Article 1, §8, cl. 3 of the United States Constitution (the Commerce Clause)

Cases:

• Lewis v. BT Investment Managers, Inc., 447 U.S. 27 (1980) (state ban on out-of-state financial institutions struck down under the Commerce Clause)
• Hughes v. Oklahoma, 441 U.S. 322, 325 (1979) (Commerce Clause restricts state regulation even absent conflicting federal law)
• Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 522-23 (1935) (Commerce Clause guards against economic Balkanization)
• Great Atlantic & Pacific Tea Co. v. Cottrell, 424 U.S. 366, 370-71 (1976) (Commerce Clause as an independent limit on state power)
• Philadelphia v. New Jersey, 437 U.S. 617 (1978) (per se test for discriminatory state laws)
• Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) (balancing test for state laws with incidental effects on commerce)
• Whitney National Bank v. Bank of New Orleans Trust Co., 379 U.S. 411 (1965) (Federal Reserve Board's jurisdiction over bank acquisitions)
• Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566 (1980) (deference to agency interpretations of the statutes they administer)
• Wilshire Oil Co. v. Bd. of Governors, 668 F.2d 732 (3rd Cir. 1981) (purposes of the Bank Holding Company Act)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1984/Volume69_1984.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

BANKING INSTITUTIONS

Commerce Clause-Bank Holding Company Act-Maryland Law May Not Constitutionally Prohibit Acquisition of State Bank by Foreign Bank.

March 2, 1984

The Honorable Margie Muller
Bank Commissioner

You have requested our opinion concerning a proposed acquisition by Wilmington Trust Company ("Wilmington Trust") of Maryland State Bank ("Maryland State"). Specifically, you have asked if the proposed acquisition is prohibited by Maryland law.

For the reasons stated below, we conclude that Maryland law may not be applied, consistently with the Commerce Clause of the United States Constitution, to absolutely prohibit this transaction.

I
Factual Background

Wilmington Trust is a Delaware bank with its principal banking office located outside of Maryland. It proposes to acquire all of the common stock of Maryland State, a commercial bank chartered by and located in this State. By agreement, Maryland State will sell its entire commercial loan portfolio prior to closing the transaction, and it then will cease to make commercial loans altogether. After completing the proposed acquisition, Maryland State will continue as a subsidiary of Wilmington Trust, with its own board of directors and officers.

Wilmington Trust has applied to the Bank Commissioner for approval of the acquisition under §3-314 of the Financial Institutions Article ("FI" Article), which generally governs commercial bank stock acquisitions.1

If your inquiry could be resolved by simple rote application of this State's statutory law, the Bank Commissioner would be precluded from approving the Maryland State transaction. FI §12-204 flatly prohibits a "foreign bank" from becoming a "bank holding company" in this State:

"A foreign bank or affiliated corporation may not become a bank holding company."2

Wilmington Trust, a "foreign bank", would become a "bank holding company" under Maryland law if it were to acquire Maryland State, thus coming directly within the purview of this specific prohibition.3

However, because FI §12-204 purports to prohibit absolutely an interstate transaction, our inquiry is not limited to State law. We must necessarily examine this provision against the backdrop of the Commerce Clause of the United States Constitution. Under the Commerce Clause, Congress has the power "[t]o regulate Commerce ... among the several States". Article 1, §8, cl. 3 of the United States Constitution. Thus, as in most Commerce Clause analyses, we first address the congressional exercise of regulatory authority in the affected area of commerce. For this purpose, we begin with the Bank Holding Company Act of 1956 (as codified at 12 U.S.C. §§1841 through 1850) (the "BHC Act").

II
§3(d) of the Bank Holding Company Act

A. Introduction

Section 3(d) of the BHC Act (12 U.S.C. §1842(d)), popularly known as the "Douglas Amendment", limits the ability of bank holding companies to engage in interstate commerce. It provides, in pertinent part:

"Notwithstanding any other provision of this section, no application ... shall be approved under this section which will permit any bank holding company or any subsidiary thereof to acquire, directly or indirectly, any voting shares of, interest in, or all or substantially all of the assets of any additional bank located outside of the State in which the operations of such bank holding company's banking subsidiaries were principally conducted... unless the acquisition of such shares or assets of a State bank by an out-of-State bank holding company is specifically authorized by the statute laws of the State in which such bank is located, by language to that effect and not merely by implication."4

Section 3(d) thus imposes a general federal prohibition on the acquisition or expansion of banking holding companies across state lines.5 The only authority reserved for the states is the power to create exceptions to this general prohibition, that is, the power to authorize acquisitions across state lines where they otherwise would be prohibited by federal law. See Lewis v. BT Investment Managers, Inc., 447 U.S. 27 (1980).

If §3(d) were applicable to the proposed transaction, it would prohibit this acquisition unless, in the words of §3(d), the laws of Maryland "specifically authorize[]" such an acquisition "by language to that effect and not merely by implication". Because Maryland law contains no such statutory authorization, indeed, Maryland law now expressly prohibits such an acquisition, the transaction posed by your inquiry would be prohibited by federal law. Thus, Commerce Clause scrutiny of Maryland law would not be required.

For the following reasons, however, we must conclude that §3(d) is inapplicable to the Maryland State transaction.

B. BHC Act Definition of "Bank"

Maryland State proposes to divest itself of its commercial loan portfolio and to cease making commercial loans after it has been acquired. In so doing, it seeks to take advantage of an increasingly popular "loophole" created by the two-pronged definition of "bank" in the BHC Act.6

Section 2(c) of the BHC Act (12 U.S.C. §1841(c)) defines a "bank" as "any institution ... which (1) accepts deposits that the depositor has a legal right to withdraw on demand, and (2) engages in the business of making commercial loans". (Emphasis added.) By eliminating all commercial loans, one of the two functions required by the definition, Maryland State seeks to avoid being considered a "bank" for purposes of the BHC Act and, specifically, §3(d). It would become, in the anomalous financial argot of today, a "nonbank" bank.

C. Legislative History

The legislative history of the BHC Act supports this plain-meaning interpretation of "bank" and the correspondingly limited scope of §3(d).

The BHC Act was enacted for the dual purposes of preventing the concentration of commercial banking activities and separating banking from commerce. Wilshire Oil Co. v. Bd. of Governors, 668 F.2d 732 (3rd Cir. 1981), cert. denied, 457 U.S. 1132 (1982).7 Over the years, however, Congress has amended the definition of "bank" in a consistent effort to limit the Act's applicability.

As originally enacted, "bank" was defined to include all national banks, state banks, savings banks, and trust companies. P.L. 84-511, §2(c), 70 Stat. 133 (1956). In 1966, Congress redefined "bank" in an effort to narrow the Act's coverage by excluding institutions that did not take demand deposits. P.L. 89-485, §6, 80 Stat. 236 (1966). See also Wilshire Oil Co., 668 F.2d at 736. The Senate Report described this change as follows:

"Section 2(c) of the act defines 'bank' to include savings banks and trust companies, as well as commercial banks. The purpose of the act was to restrain undue concentration of control of commercial bank credit, and to prevent abuse by a holding company of its control over this type of credit for the benefit of its nonbanking subsidiaries. This objective can be achieved without applying the act to savings banks ... [T]he bill redefines 'bank' as an institution that accepts deposits payable upon demand (checking accounts), a commonly accepted test of whether an institution is a commercial bank, so as to exclude institutions like industrial banks and nondeposit trust companies." S. Rep. No. 1179, 89th Cong., 2d Sess. (1966) reprinted in 1966 U.S. Code Cong. & Ad. News 2385, 2391 (emphasis added).

In 1970, Congress sought to further limit the Act's scope by adding the second element to the current definition of "bank": the specification that the institution be engaged "in the business of making commercial loans". The Senate Report reflected congressional concern with the practical effect that the 1966 definition had on commercial lending practices:

"Banks as defined in the act must accept demand deposits and engage in the business of making commercial loans. The definition of 'bank' adopted by Congress in 1966 was designed to include commercial banks and exclude those institutions not engaged in commercial banking, since the purpose of the act was to restrain undue concentration of commercial banking resources and to prevent possible abuses related to the control of commercial credit. However, the Federal Reserve Board has noted that this definition may be too broad and may include institutions which are not in fact engaged in the business of commercial banking in that they do not make commercial loans. The committee, accordingly, adopted a provision which would exclude institutions that are not engaged in the business of making commercial loans from the definition of 'bank'." S. Rep. No. 91-1084, 91st Cong., 2d Sess. (1970), reprinted in 1970 U.S. Code Cong. & Ad. News 5519, 5541 (emphasis added).

Accordingly, we must conclude that the proposed status of Maryland State as an exempt "nonbank" bank is consistent with the legislative history of the BHC Act.

D. "Nonbank" Banks, The Federal Reserve Board

The Board of Governors of the Federal Reserve System (the "Federal Reserve Board") is generally charged with exercising exclusive jurisdiction over the acquisition of existing banks under the BHC Act. See Whitney National Bank v. Bank of New Orleans Trust Co., 379 U.S. 411 (1965). We are mindful of the well-established principle that considerable deference should be afforded interpretations of statutes by the agencies charged with their administration. Accordingly, recent rulings from the Federal Reserve Board on "nonbank" banks are particularly pertinent to your inquiry. See Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566 (1980).8

In 1981, the Federal Reserve Board reviewed a proposed acquisition of Fidelity National Bank by Associates First Capital Corporation, a subsidiary of Gulf and Western. Prior to the acquisition, Fidelity divested itself of all of its commercial loans and agreed not to make any new commercial loans after the acquisition.9 Given those circumstances, the Federal Reserve Board concluded:

"Under section 3(a)(1) of the Act (12 U.S.C. §1842(a)(1)), it is unlawful, except with prior Board approval, for any action to be taken that causes any company to become a bank holding company. Since a bank holding company is defined under the Act as any company that controls a 'bank', Associates would have had to obtain the Board's prior approval to become a bank holding company before acquiring [Fidelity], if [Fidelity] were a 'bank' under the Act. . . .

Based upon the information contained in your submissions, it appears that [Fidelity] is not a 'bank' within the meaning of section 2(c) of the Act, since it has divested itself of its commercial loan portfolio, has committed that it will not engage in commercial lending, and intends to limit its lending to loans to individuals for personal, family, household or charitable purposes." Letter from James McAfee, Assistant Secretary of the Board, to Robert C. Zimmer, Esquire (March 12, 1981), reprinted in American Banker, March 13, 1981.10

More recently, the Federal Reserve Board considered the application of Citizen's Fidelity Corporation, a Kentucky bank holding company, to acquire all of the shares of Citizen Fidelity (Ohio), N.A., a proposed limited-purpose national bank chartered to engage in credit card operations. The Board was fully aware of the fact that the applicant's purpose in so limiting Citizens Fidelity (Ohio)'s activities was "to avoid bank status and the interstate banking prohibitions contained in the Act"; the Board nevertheless was "constrained to conclude, on the basis of the specific facts of this case, that [Citizens Fidelity (Ohio)] will not be a bank for purposes of the Act". 69 Fed. Res. Bull. 556, 557 (July, 1983). In dismissing objections raised by the Ohio Superintendent of Banks, the Board stated:

"In addition, the Ohio Superintendent has asserted that this application is inconsistent with the interstate banking prohibitions of section 3(d) of the BHC Act. However, because of the Board's finding under existing law and interpretations that [Citizens Fidelity (Ohio)] is not a bank under the BHC Act, section 3(d) of the Act is not applicable to the proposal." 69 Fed. Res. Bull. at 558.

E. Summary

In summary, this "loophole" in the coverage of the BHC Act, if such a characterization is accurate, is consistent with the legislative history of the Act and has received federal regulatory approval. We must therefore conclude that this "loophole" is currently the law.11

Accordingly, §3(d) of the Act would not apply to the proposed transaction if, as is contemplated, Maryland State would not be engaged "in the business of making commercial loans".12

III
State Regulation and the Commerce Clause

A. Introduction

Absent applicability of §3(d) of the BHC Act, Maryland law may only prohibit the proposed transaction if it can survive a traditional Commerce Clause analysis.13 The underlying principles are constitutionally well-settled, and the analysis in the present context a familiar one.

In the "few simple words of the Commerce Clause", the Framers carried out their determination that commerce among the states be subjected to the power of the nation, in order to thwart "the tendencies toward economic Balkanization" that had plagued the country before independence and, later, under the Articles of Confederation. Hughes v. Oklahoma, 441 U.S. 322, 325 (1979). See also Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 522-23 (1935) (Cardozo, J.).

For over a century, the Supreme Court has recognized that the Commerce Clause operates as a restriction on permissible state regulation, even in the absence of conflicting federal legislation. Hughes v. Oklahoma, 441 U.S. at 326. "[A]t least since Cooley v. Board of Wardens, 12 How. 299, 13 L.Ed 996 (1852), it has been clear that 'the Commerce Clause ... even without implementing legislation by Congress is a limitation upon the power of the States'". Great Atlantic & Pacific Tea Co. v. Cottrell, 424 U.S. 366, 370-71 (1976).

B. The BT Investment Case

More recently, in Lewis v. BT Investment Managers, Inc., 447 U.S. 27 (1980), the Court has applied traditional Commerce Clause principles to state laws that prohibit entry of out-of-state financial institutions providing investment services.

We find the present factual situation remarkably similar to the facts before the Court in BT Investment. Maryland law, like the Florida statute ruled unconstitutional by the Supreme Court, prohibits the ownership of banks by an institution possessing two characteristics: (1) a certain kind of business organization and purpose (a bank or affiliated corporation); and (2) location of principal operations outside Maryland. See BT Investment, 447 U.S. at 37.14

In BT Investment, the Supreme Court recognized that regulation of banking and related financial activities are of profound local concern. The Court nevertheless observed that, in a Commerce Clause analysis:

"However important the state interest at hand, 'it may not be accomplished by discriminating against articles of commerce coming from outside the State unless there is some reason, apart from their origin, to treat them differently.'" BT Investment, 447 U.S. at 36 (quoting Philadelphia v. New Jersey, 437 U.S. 617, 626-27 (1978)).

The Court noted that the Florida statute created a disparity based on location that, like the Maryland statute we here consider, effectively precludes an out-of-state banking institution from operating in the State:

"Under the Florida statute, discrimination against affected business organizations is not evenhanded because only banks, bank holding companies, and trust companies with principal operations outside Florida are prohibited from operating investment subsidiaries or giving investment advice within the State." BT Investment, 447 U.S. at 42 (emphasis in original).

Such parochialism directly affects a statute's constitutionality:

"Both on its face and in actual effect [the Florida statute] thus displays a local favoritism or protectionism that significantly alters its Commerce Clause status." BT Investment, 447 U.S. at 42.

The Court found it unnecessary to resolve whether the Florida statute was unconstitutional under the "per se" test set forth in Philadelphia v. New Jersey, 437 U.S. 617 (1978), because the challenged law could not even meet the less stringent constitutional test set forth in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970):

"We need not decide whether . . . the Florida legislation [is] per se invalid, for we are convinced that the disparate treatment of out-of-state bank holding companies cannot be justified as an incidental burden necessitated by legitimate local concerns." BT Investment, 447 U.S. at 42.

C. Application

In 68 Opinions of the Attorney General 75 (1983), we addressed the "incidental burden" posed by FI §12-204 in light of the "legitimate local concerns" that were analyzed and specifically found lacking in BT Investment.15 In that Opinion, we considered the BT Investment holding to be dispositive in concluding that the provisions of FI §12-204, if applied to prohibit the transaction there in question, would violate the Commerce Clause. 68 Opinions of the Attorney General at 81.

We believe that the same is true of the proposed Maryland State transaction at issue here. In so concluding, we find it particularly relevant here that any other possible "legitimate local concerns", including any not identified in BT Investment, would be significantly muted, if not mooted, by applying the approval process set forth in FI §3-314 to this transaction.16

In light of this approval process, and given the retained supervisory power of the Bank Commissioner over Maryland State, we cannot readily identify any constitutionally permissible "local concerns" that cannot be adequately addressed under other existing State laws.17

IV
Conclusion

In summary, it is our opinion that, under the Commerce Clause, Maryland law may not absolutely prohibit an interstate bank holding company acquisition that, as here, falls outside the purview of the Bank Holding Company Act.

Accordingly, we advise that FI §12-204 may not be applied to prohibit the Maryland State transaction in question.

Stephen H. Sachs, Attorney General

Francis X. Pugh,
Assistant Attorney General

Robert deV. Frierson,
Assistant Attorney General

Avery Aisenstark
Chief Counsel
Opinions and Advice

Editor's Note: Since the issuance of this Opinion, the General Assembly enacted the Reciprocal Interstate Banking Acquisitions Act. Chapter 113, Laws of Maryland 1985 (codified as Subtitle 10 of Title 5 of the Financial Institutions Article). This legislation authorizes acquisitions of Maryland banks and Maryland bank holding companies by certain out-of-state holding companies. See also Chapters 158 and 325, Laws of Maryland 1986.

1 FI §3-314(c)(1) provides that "[a] person who intends to make a stock acquisition shall apply to the Bank Commissioner for approval, at least 60 days before the acquisition becomes effective". Under FI §3-314(a)(3), "stock acquisition" means "[a]n acquisition of the outstanding voting stock of a commercial bank or bank holding company in this State, if the acquisition will affect the power to direct or cause the direction of the management or policy of any banking institution or bank holding company". Under FI §3-314(d), "[t]he Bank Commissioner may deny approval for a stock acquisition that the Bank Commissioner determines to be anticompetitive or to threaten the safety or soundness of a banking institution".

2 "Foreign bank" is defined as "any bank or trust company other than: (1) [a] State banking institution that has its principal banking office in this State; and (2) [a] national banking association that has its principal banking office in this State". FI §12-201(e). "Bank holding company" is defined, in relevant part, as "a corporation that owns of record or beneficially 25 percent or more of the outstanding voting shares of . . . [a] State banking institution that has its principal banking office in this State". FI §12-201(c)(1).

3 In FI §12-207, Maryland law also generally prohibits a "foreign banking corporation" from "hav[ing] any office ... in this State . . . [t]o solicit deposits . . . or . . . conduct... [a] general banking business". FI §12-207(b). "Foreign banking corporation" is defined to include "[a]ny corporation that . . . [i]s", as Maryland State would be, "controlled by a foreign bank". FI §12-201(f). We have previously advised that FI §12-207 may not constitutionally prohibit indirectly that which FI §12-204 is constitutionally precluded from prohibiting directly. 68 Opinions of the Attorney General 75, 84 (1983). Consequently, given the constitutional infirmities associated with the direct prohibition imposed by FI §12-204, as discussed below in this Opinion, it is unnecessary to separately analyze the inapplicability of FI §12-207 to the Maryland State proposal.

4 This provision was offered as an amendment to the BHC Act by Senator Paul Douglas of Illinois. See 102 Cong. Rec. 6860 (1956) (remarks of Senator Douglas).

5 The only exception to this ban under federal law is contained in the Garn-St. Germain Depository Institutions Act of 1982, at 12 U.S.C. §§1823(f)(1) and 1730a(m)(1)(A)(i). These provisions allow emergency acquisitions across state lines of failing institutions.

6 The "loophole" designation and its successful utilization are discussed in Kaplinsky, That "Loophole" in the BHC Act, American Banker, January 27, 1983, at 4.

7 See also S. Rep. No. 1095, 84th Cong., 1st Sess. 22 (1955), reprinted in 1956 U.S. Code Cong. & Ad. News 2482, 2483.

8 Although not directly involved with the administration of the BHC Act, the Comptroller of the Currency has granted several charters for "nonbank" national banks. These approvals were based on a finding that the BHC Act did not apply because the institutions would not make commercial loans. See, e.g., Application of Citizens Fidelity Corporation (February 4, 1983) (News Release 83-75) and Application of American Investment Thrift (November 7, 1983) (News Release 83-75). Last year, the Comptroller imposed a moratorium on "nonbank" bank charters, extending from April 6, 1983 to January 1, 1984. See Fed. Banking L. Rep. (CCH) §99,528. More recently, this moratorium was extended by the Comptroller to March 31, 1984. See 41 Wash. Fin. Rep. 760 (November 21, 1983).

9 Fidelity also made additional commitments to insure a complete separation of its deposit-taking activities from the commercial lending activities of Associates and Associates' affiliates. See note 12 below.

10 This precedent was followed by the Board later in 1981, when Chrysler Corporation proposed the formation of a limited-purpose bank (Automotive Financial Services, Inc.), to be chartered under the laws of Michigan as the bank of first deposit for drafts drawn by and payable to Chrysler under its cash draft collection system. Noting that Chrysler Corporation had made a commitment to "ensure that Financial Services will make no commercial loans", the Board "determined that Financial Services will not be a bank for purposes of the Bank Holding Company Act". Letter to R. S. Miller, Jr., Executive Vice President, Chrysler Corporation (May 28, 1981), reprinted in [1981-82 Transfer Binder] Fed. Banking L. Rep. (CCH) 198,770.

11 On December 14, 1983, the Federal Reserve Board sought to tighten this "loophole" by expanding its definition of "commercial loan" under Regulation Y (12 C.F.R. §225 et seq.). Under this revised definition, a commercial loan includes any loan the proceeds of which are used for other than personal, family, household, or charitable purposes, including the purchase of commercial paper, bankers acceptances, certificates of deposit, the sale of federal funds, and other transactions that establish a debtor-creditor relationship. See Bank Holding Companies and Change in Bank Control; Revision of Regulation Y, 49 Fed. Reg. 794, 798 (1984) (to be codified at 12 C.F.R. §225). We have been advised, however, that this expanded definition will not affect the "nonbank" bank status of Maryland State. In a related development, the Federal Reserve Board recently raised concerns over the application of Dimension Financial Corporation to charter 31 "nonbank" banks in 25 states (including Maryland). The Board's general counsel, in a letter dated November 15, 1983, to the chief counsel of the Comptroller, noted that "there is a substantial question whether the Dimension banks would be 'banks' for purposes of the BHC Act". Although there is a pending petition by Deerbrook Bank urging the Board to assume jurisdiction over the Dimension matter, the Board has not yet acted. There are also several pending bills before Congress designed to end the "nonbank" bank device. See 41 Wash. Fin. Rep. 790 (November 21, 1983).

12 In past rulings on "nonbank" bank applications, the Federal Reserve Board has granted its approval contingent upon certain commitments going beyond simple divestiture of an existing commercial loan portfolio. These commitments, discussed in the Associates First Capital Corporation (March 12, 1981) and Chrysler Corporation (May 28, 1981) letters, are designed to ensure a complete separation of the "nonbank" bank's deposit-taking activities from the acquiring institution's commercial lending activities. We here restate those commitments, modified hypothetically in terms of the pending Maryland State transaction, for your appropriate consideration: (1) Maryland State's charter would prohibit it from making commercial loans (authority to issue a limited charter under Maryland law has been previously recognized in 65 Opinions of the Attorney General 36 (1980)); (2) Maryland State's charter would prohibit Maryland State from in any way supplying or maintaining the availability of funds to Wilmington Trust or any affiliate of Wilmington Trust, except in the form of dividends and except for the relationship of depositor and bank that may exist between Wilmington Trust (and subsidiaries of Wilmington Trust not engaged in commercial lending) and Maryland State; (3) Wilmington Trust would not permit itself or its affiliates to enter into any extensions of credit, lending, or deposit relationships, joint ventures, or activities performed on a fee basis involving Maryland State, unless permitted by applicable statutes, rules, or regulations; (4) no commercial loan inquiries, opportunities, or referrals would be directed by Maryland State to Wilmington Trust or any affiliate of Wilmington Trust, and no deposits with or for the account of Maryland State would be loaned by Maryland State to, or used for the benefit of, any activity of Wilmington Trust or its affiliates that could be construed to involve commercial loans; and (5) Maryland State would adopt procedures to internally monitor compliance with each of these commitments. These restrictions are consistent with both the purpose of the BHC Act and the general reservation of authority to the States stated in §7 of the Act (12 U.S.C. §1846), namely, to avoid the concentration of commercial banking activities. Commercial banking may be subject to control or concentration not only through direct lending but also through tie-in referrals.

13 We have previously analyzed, and found wanting, the proposition that §7 of the BHC Act (12 U.S.C. §1846) provides independent authority for state regulation of interstate bank holding company acquisitions. Section 7 provides, in relevant part: "The enactment... of this [Act] shall not be construed as preventing any state from exercising such powers and jurisdiction which it now has or may hereinafter have with respect to banks, bank holding companies and subsidiaries thereof." In light of the ruling in B.T. Investment, we must conclude that §7 provides no authority for insulating the provisions of FI §12-204 from a thorough Commerce Clause analysis. See generally 68 Opinions of the Attorney General 75, 83 (1983).

14 By recent legislation, Maryland now permits out-of-state bank holding companies to own a single local bank chartered after July 1, 1983. Chapter 143, Laws of Maryland 1983, codified at FI Title 5, Subtitle 9. From a constitutional perspective, however, the mere fact that a foreign bank holding company may now enter the State by chartering a new bank does not alter the Commerce Clause issues raised by a blanket prohibition against acquiring existing banking institutions.

15 The "local concerns" identified by the Court were: "an interest in discouraging undue economic concentration in the arena of high finance; an interest in regulating financial practices, presumably to protect local residents from fraud; and an interest in maximizing local control over locally based financial activities". BT Investment, 447 U.S. at 43.

16 See note 1 above and accompanying text. FI §3-314 applies equally to all persons desiring to acquire the stock of a local bank, and it does not at all differentiate among prospective purchasers based on their in-state or out-of-state origin or status. Hence, the application of FI §3-314 to this transaction does not raise the same Commerce Clause issues as does FI §12-204.

17 Although Maryland State may be a "nonbank" for purposes of the BHC Act, it nonetheless remains a "bank" under Maryland law, subject to the supervisory and regulatory control of the Bank Commissioner.