Douglas Amendment

Posted in Finance, Accounting and Economics Terms, Total Reads: 397
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Definition: Douglas Amendment

Amendment made to Bank Holding Act, 1956 by Illinois, U.S. Senator Paul Douglas in 1985-86, is referred to as Douglas Amendment. The amendment recommended maintaining ‘banking compact’ i.e. restricting banking firms from acquiring banks in other states except in cases where the acquisition was approved by the state. This amendment was the result of large scale consolidation wave by large banks where small regional banks were being merged.


The regional banks were said to be vulnerable to financial and banking power of the large national banks. Douglas Amendment however allowed for regional compacting, i.e. intra-state banks could merge. Therefore, Douglas Amendment empowered the state to control the extent of concentration of outside banks (banks outside the state, in this case).


The amendment faced opposition from quarter which argued that this amendment favored protectionist measures, thus allowing the state to interfere in commerce clause. The commerce clause granted only the congress the power to regulate interstate commerce.


Riegle-Neal Interstate Banking and Branching Efficiency Act, 1994 repealed the Douglas Amendment -allowing nation-wide banking irrespective of state law. Riegle-Neal Act drastically reduced the number of banks operating in U.S. The numbers are given in the following table:

Year

Number of Banks in U.S.A

1800

25

1860

1364

1940

14399

2006

8000

2013

5783


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