DEFINITION of 'Interstate Banking'

The expansion of banking across state lines. Interstate banking became widespread in the mid 1980s, when state legislatures passed legislation that allowed bank holding companies to acquire out-of-state banks on a reciprocal basis with other states. Interstate banking has led to the rise of both regional and national banking chains.

BREAKING DOWN 'Interstate Banking'

Interstate banking has grown in three separate phases, starting in the 1980s with regional banks. These companies are limited to a specific region, such as the Northeast or Southeast, and were formed when smaller, independent banks merged to create larger banks. Then state law permitted a national trigger that allowed mergers with banks in any other state after a certain date. The Reigle-Neal Interstate Banking and Branching Efficiency Act allowed banks which met capitalization requirements to acquire other banks in any other state after Oct. 1, 1995. The direct result of these legislations was the onset of nationwide interstate banking.

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