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State Focus: Ohio

By Kevin Allard, Superintendent, Ohio Division of Financial Institutions

AllardMy role as Superintendent of the Ohio Division of Financial Institutions means I am not only responsible for the chartering, licensing and regulating financial institutions within the state but also for supporting our institutions, so they can provide the community with their banking needs as efficiently as possible.                                                                         

To that end, our department has sought opportunities to streamline some processes and reduce the regulatory burden on our financial institutions. Throughout 2015 and 2016, we provided consultation on a comprehensive modernization process spearheaded by the Ohio Bankers League. The last material rewrite of Ohio’s banking statutes occurred in 1997. This gap meant modernization was sorely needed, and doing so would be a heavy lift.         

The process culminated in 2017 with our legislature passing the overhaul of the state’s statutory banking code. One of the more notable updates included the creation of a “universal” bank charter in the state by consolidating the three existing charter types into one universal charter. On Jan. 1, 2018, this new universal “state bank” charter became effective, encompassing Ohio-chartered banks, savings and loan associations (S&Ls) and savings banks.

The universal charter occurred automatically for most institutions, with one exception. It was determined that a significant number of Ohio thrifts with savings and loan holding companies would likely need to go back to the Federal Reserve to convert to a bank holding company due to their change in charter status under Ohio law. After discussion with the Fed, we determined including an opt-out provision in state law that would permit them to keep their status as a state S&L would solve this issue. The Fed agreed that these institutions could elect to remain a S&L under state law and not need to convert their holding company.

Seventeen institutions decided to opt out; nine of them had S&L holding companies. Institutions that elected to remain S&Ls would need to continue to comply with the qualified thrift lender test under state and federal law, including certain restrictions on the composition of their balance sheet.

Notable benefits for institutions under this update:

  • Streamlined charters – The code eliminates unnecessary distinctions in charter types.
  • Added permissible activities – Savings associations that elect to convert to a universal charter avoided prior restrictions on commercial lending.
  • Modernized Corporate Governance – The code is better aligned to corporate law which removes redundancy and enables banking institutions to benefit from the flexibility of modern corporate governance rules.
  • Streamlined existing parity authority – When national banks are authorized to engage in a power not available under state law, state-chartered institutions only need to provide a written notice to the Ohio Division of Financial Institutions to engage in that same activity.
  • Ability to apply for a shelf charter – Organizing groups may now receive approval from the Ohio Division of Financial Institutions for certain corporate transactions like a de novo or change of control if they have the proper capital and other qualifying factors, even if they don’t plan to open a new bank or operate right away. This might be useful to a group seeking to purchase a bank through an asset transaction.

I am proud of my department’s work to modernize and simplify the Ohio code. We will continue to improve our financial system in Ohio to foster economic prosperity for all.

The Ohio state banking laws and rules can be found here.

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