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Texas Commerce Bankgroup FLAG CARD Bankholding companies keep branching out By Tim Mahoney Austin, Houston, Dallas Atty. Gen. John Hill is studying it and the chairman of the U.S. House banking committee has asked the Justice Department to look into itbut no one has really done anything about it yet. “It” is branch banking in Texas, which is what some of our largest bankholding companies clearly seem to be engaged in, despite a little constitutional ban against the practice. While public officials ponder the matter, local banks continue to be swallowed whole by the state’s largest financial corporations. Just in the four months since the Observer published its special majors have taken over eight more banks in seven cities, adding another quarter of a percent of Texas’ depositor wealth to their holdings. The top 15 companies had already held 51 percent of total deposits, and the holding company movement shows every sign of growing stronger. The biggest recent acquisition was made by Houston’s Allied Bancshares, the state’s tenth largest holding company, which picked up five banks in a single xlayone each in Houston, Humble, Addicks, Newton and Winnie. In approving these mergers, the Federal Reserve Board seems to have thrown in the towel, conceding all banking business in Texas to the large holding companies. The Fed noted that Allied’s acquisition of the three Houston-area banks would not unduly stifle banking competition in the metropolitan market \(where the ten largest holding companies already command nearly 70 percent of independent banks that “would remain as potential entry vehicles for holding companies not presently represented in the market.” It is an open invitation to raid the chicken coop. Besides winking at Allied’s extraordinary haul, the Federal Reserve Board also allowed Dallas’ Republic of Texas Corp., Houston’s First City Bancorporation, and the First Texas Bancorporation of Georgetown to merge with banks in Carrollton, Bryan and Belton, respectively. Evidence of illegal branch banking on the part of Texas’ bankholding companies is available at a glance. As the Observer noted in July, no reasonable personnot even a lawyercan look at the operations of such firms as Texas Commerce Bancshares or First City 18 DECEMBER 2, 1977 Bancorporation and argue seriously that their subsidiaries function as independent units, as the parent companies contend. Subsidiary banks are owned by their holding companies; their boards typically include a liberal sprinkling of holding company officers and directors; their executive officers increasingly are hired, trained and promoted from the central headquarters banks;* the parent firms have more than a little to say about the loan policies of their local affiliates; a subsidiary’s accounting and computer systems are uniform with and integrated into those of its holding company; and, through common logos, checks and advertising, subsidiaries identify themselves collectively rather than individually, as separate banks. All of these are factors that federal courts have indicated they will consider in determining whether a particular holding company network constitutes de facto branch banking. Now it appears that many of the state’s holding companies are throwing caution to the wind by advertising the straightforward branch-banking nature of their operations. In the Nov. 14 edition of the Houston Chronicle, a phony news story slipped into an oil industry ad supplement \(see “Oil and journalism do celebrates the expansion of staff and facilities going on at Houston’s First International Bank, “a subsidiary of First International Bancshares, Inc.,” of Dallas. The simulated news copythe piece is itself a paid adlets readers know that “by coordinating its activities with First National Bank in Dallas, as well as other subsidiaries in the First International Bancshares system, First International Bank in Houston is able to provide services on a worldwide basis.” Such a coordinated system has, evidently, be come a real money maker, further strengthening “an organization long recognized as a leader in energy financing.” The organization, First International Bancshares, with assets approaching $8 billion, “is one of the largest financial institutions in the South and Southwest,” and Texas’ biggest bankholding company. Perhaps of more practical interest is * Indeed, an executive recruiting team from Texas Commerce came to the University of Texas recently, seeking trainees for systemwide placements. In response to questions, it was made clear that an executive was considered an employee of the holding company, available for duty anywhere in the system. what the Houston-based Texas Commerce Bancshares, Inc., is up to. Through “Flag Card,” a magnetically encoded identification system, TCB encourages depositors within a particular metropolitan area to cash checks at any of several of its local subsidiaries. In short, customers are ableand invitedto treat two banks as one. Flag Card fits the narrowest criterion of what constitutes branch banking, and TCB has seemingly dared state officials to do anything about its use. Cash Checks in 13 Houston Area Banks. In a brochure promoting Flag Card in the Houston area, TCB gives the locations of 13 banks depositors may choose from for “cash where you need it.” The brochure assures depositors, “There’s one [of Qur banks] near your home, near your work, where you shopwherever you happen to be whenever you need to cash a check.” There’s also a TCB Flag Card networkin the Dallas-Fort Worth area, where the holding company currently has nine subsidiaries. Here, too, customers are urged to treat member banks like branches: “Wherever you happen to find yourselfin downtown Fott Worth, in the Mid-Cities, in the. North Dallas suburbsyou’ll find one of our banks will be happy to cash your personal check. Flag Card is your passport. to convenience, everywhere in the Metroplex.” The brochure, available in all TCB bank lobbies, reminds depositors that they are doing business with a group of