Let’s say your client is a bank based outside of Ohio, and suppose further your client wants to set up a banking business in Ohio.

Most of the time a merger transaction will result in a non-Ohio bank doing business in Ohio through an out-of-state franchise of course. But in light of changes to Ohio banking law that took effect on January 1, 2018, in an appropriate business situation, an Ohio bank might be a good way for a non-Ohio banking organization to do business in Ohio. Consider:

  • The directors of the Ohio bank now have the protections of general corporate directors such as the business judgment rule and not the more limited protections previously afforded bank directors. (Ohio Revised Code §1105.11)
  • Director requirements for an Ohio bank have been loosened. Now there is no requirement that Ohio bank directors live in Ohio in order to serve on the bank board. (Ohio Revised Code §1105.02)
  • Directors, officers and employees of an Ohio bank are not individually liable for bank law violations unless the person knowingly violated the law. (Ohio Revised Code §1105.11)
  • The new law modernizes communications requirements by providing that board meetings can be held through any communications equipment if all of the participants can communicate with each other. (Ohio Revised Code §1105.08)
  • The new law simplifies corporate governance procedures for the Ohio bank: It is to be created, organized, and governed, its business is to be conducted, and its directors are to be chosen, in the same manner as is provided under the general corporation law. (Ohio Revised Code §1113.01)
  • A shelf bank charter is authorized for various purposes. (Ohio Revised Code §1115.24)
  • The new Ohio law protects the books and records of a wholly-owned banking subsidiary from inspection by the shareholders of its bank holding company. To do so, the new law effectively overrules a 4-3 decision of the Ohio Supreme Court (Danzinger v. Luse, 103 Ohio St. 3d 337, 2004-Ohio-5227 (2004)) which held the shareholders of a bank holding company had a common law right to access the corporate books and records of its wholly-owned banking subsidiary on a piercing of the corporate veil theory (even though the corporate formalities had been observed) when the two corporations had a common business purpose, a common board of directors and common set of officers. Under Ohio law, a statute will not abrogate common law unless the statute expressly so provides and the new Ohio banking code expressly abrogates any common law right of inspection held by the shareholders of a banking holding company to inspection the books and records of a wholly-owned bank subsidiary. (Ohio Revised Code §1113.17(D))
  • An Ohio state bank can exercise all of the powers of any other bank competing in Ohio such as, for example, all of the powers of a national bank or federal savings association. (Ohio Revised Code §1109.02)
  • None of Ohio bank’s regulatory materials could be introduced at a civil proceeding for any purpose. (Ohio Revised Code §1181.25)
  • A new litigation privilege for self-assessment applies to Ohio banks. (Ohio Revised Code §1121.19)
  • No person other than bank regulators could assert a claim against the Ohio bank based on a regulatory provision of the state banking code. (Ohio Revised Code §1101.15)
  • An Ohio bank under most conditions can send electronic deposit and savings account statements and use electronic deposit agreements. (Ohio Revised Code §1109.05(c))
  • Now an Ohio bank’s provision of safes, vaults, safe deposit boxes, night depositories, and other secure receptacles for the use of its customers does not create a bailment relationship. (Ohio Revised Code §1109.08(c))
  • Now an Ohio bank may rely on any information, agreements, documents, and signatures provided by its customers as being true, accurate, complete, and authentic and that the persons signing have full capacity and complete authority to execute and deliver any such documents if the bank is acting in good faith, which means in this context honesty in fact and the observance of reasonable commercial standards of fair dealing. (Ohio Revised Code §1109.04(a))
  • Now the bank-customer relationship as a matter of law does not create a fiduciary or other special relationship. (Ohio Revised Code §1109.131)
  • Ohio’s bank record retention statue now expressly incorporates federal record retention requirements and under Ohio law, any action by or against a bank based on, or the determination of which would depend on, the contents of records for which a period of retention or preservation is set forth in the statute must be brought within the time for which the record must be retained or preserved. (Ohio Revised Code §1109.69)
  • Now Ohio law protects the terms “bank” “banking,” “savings,” “loan,” “savings and loan,” “building and loan,” or “thrift” in order to prevent misleading use of the terms by bank competitors. There is a new civil money penalty of up to $10,000 a day for violations. (Ohio Revised Code §§1101.15 and 1101.99)

State banking codes are complex and Ohio’s is no exception. And there is the matter of federal preemption to consider. Careful consideration also must be given to comparative regulatory costs which, like the stock market, will fluctuate over time. But certainly a careful consideration of the benefits and burdens of doing business as an Ohio bank is warranted in light of the favorable 2018 changes to Ohio’s banking code.