Federal law technically forbids banks to branch across state lines. But the rules have not stopped the interstate spread of financial institutions that function very much as real banks do. These companies have been able to circumvent the law because they do not fit the legal definition of a bank: an institution that takes deposits that can be withdrawn on demand and makes commercial loans. Known as "nonbank banks," the newcomers generally take deposits or make loans, but do not do both. About 80 of these limited-service banks have sprung up across the U.S.
In 1984 the Federal Reserve Board moved...
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