What is the Douglas Amendment

The Douglas Amendment was an amendment to the Bank Holding Act of 1956 in the United States. It prevented banks from acquiring banks across state lines. A bank could seek an exception to this rule by getting the authorization of the state of the bank to be acquired, but this exception was rarely granted.

BREAKING DOWN Douglas Amendment

The Douglas Amendment became necessary because bank holding companies were evading the McFadden Act and state banking regulations by buying banks in other states and operating them as branches. The McFadden Act prohibited branch banking across state lines but sought to level the playing field for national banks in competition with state-chartered banks by allowing them to open branches in-state to the extent allowed by state law. The purpose of the Amendment was to prevent the concentration of banking power and to keep it diffused to the extent possible.

In 1994, the Riegle-Neal Banking Act was introduced that allowed banks to acquire other banks in different states, effectively repealing the Douglas Amendment. As a result, the U.S. experienced a period of consolidation and increases in bank sizes.