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
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 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.
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.