Commerce Bank tries to dump federal regulator

Commerce Bank/Harrisburg got into hot water with its federal regulator in recent years. Now, the bank wants to switch to a state agency.

Banks can choose to be regulated by a federal agency known as the Office of the Comptroller of the Currency (OCC) or by their state banking departments. Commerce on June 4 filed a petition asking the Pennsylvania Department of Banking to take over from the OCC. The switch would have to be approved by the state banking department, but not by the OCC.

With the change, Commerce would escape two ongoing enforcement actions by the OCC. Those actions -- formal agreements between the agency and the bank -- would no longer be in effect if the bank switches, OCC spokesman Dean DeBuck said. The agreements called on the bank to overhaul internal procedures and imposed restrictions on Commerce's ability to do business with company insiders.

Commerce should not expect a free ride from the Pennsylvania Banking Department, said department spokesman Dan Egan.

"Any enforcement action against any bank that wants to convert is definitely going to be something that we're going to look at," Egan said.

If the banking department has concerns, it could require Commerce to sign agreements similar to those the OCC has imposed, he said.

Former Pennsylvania Secretary of Banking A. William Schenck III said in general, regulators are unlikely to approve a change for a bank that's in trouble with another agency.

"Typically banks don't seek out regulators because they're easier to deal with," Schenck said.

Commerce Bank spokesman Jason Kirsch did not comment on the bank's specific reasons for seeking the change.

"Our board of directors determined the transition from a national bank charter to a Pennsylvania state bank charter is simply appropriate at this time," he wrote in an e-mail.

The OCC clamped down on the local Commerce after the agency took similar steps with a closely related bank in New Jersey, known informally as New Jersey Commerce. The New Jersey bank owned a slice of Commerce Bank/Harrisburg and the two institutions shared their brand. But New Jersey Commerce was recently sold to a Canadian company.

Vernon Hill, the former top leader of New Jersey Commerce, has alleged in a federal lawsuit that the OCC improperly forced his ouster from the company.

"The OCC set upon a course to drive Mr. Hill out of Commerce," according to his lawsuit.

One of Hill's business partners has argued in a blog post that the agency's actions against New Jersey Commerce were unfair.

Commerce Bank/Harrisburg may simply be taking Hill's advice in pursuing the change. Hill urged OCC-regulated banks to switch to state charters in a recent blog post. It's a particularly attractive option for banks in Pennsylvania, New Jersey and New York, he said. That's because regulators in those three states in April signed a compact making it easier for banks to do business across their borders.

The switch also would save Commerce Bank/Harrisburg money. Banks must pay fees to be regulated, and most state banking departments, including Pennsylvania, are cheaper than the OCC. State regulators also are seen as more flexible and responsive to small banks, said Arthur E. Wilmarth Jr., a George Washington University Law School professor focused on banking.