Slide 7 of 26
An earlier technological revolution – the automobile – was a principal cause of a change in this structure whereby the number of branches increased and the number of main offices decreased. This process was accelerated by the advent of the telephone and by financial institution failures during the Great Depression. The result was a period during which traditional banking relied principally on presence of physical branches to provide services and those branches provided service to ever expanding geographic areas. The service area expanded as evolving technology allowed pertinent information to be exchanged across ever greater distances.
As technology and capabilities developed, these operating restrictions that limited banks to a particular area were overcome through several means, such as the development of interstate banking compacts, use of holding companies, and establishment of non-banking subsidiaries. The developments all resulted in the financial institution being "present" in that forum for the purpose of jurisdictional questions. Today, by means of branches, service corporations, second tier service corporations, operating subsidiaries, holding company affiliates, agency offices, all kinds of different "facilities," joint ventures, limited partnerships, and the use of telephones, faxes and mass mailings, financial service firms can now be "present" anywhere they want to be. Further, these techniques that the traditional depository institutions have needed to employ to operate outside of the geographic boundaries established by the banking regulators have not even been necessary for the mortgage bankers, consumer finance companies, and securities firms.
Thus, on one level, the Internet is simply an extension of this general historical process in which financial services firms have expanded their ability to provide their products and services to virtually anywhere in the world. The net result of these historical developments is that, even without the advent of the Internet and e-commerce, the financial services institutions currently have the realistic ability, if they choose to exercise it, to establish a physical presence in any part of the a country or the word sufficient to subject them to local jurisdiction under traditional forms of jurisdictional analysis. Thus, from this perspective, the advent of the Internet is simply the latest (although perhaps the most powerful) in a long series of institutional and technological changes that have enabled depository institutions to be “present” for actual or potential jurisdictional purposes. On another level, the advent of the Internet has changed the pace of the historical process to a degree that is often disconcerting for participants and policy makers. Indeed, the pace of change is so great that an historical piece of legislation (H.R. 10) that will radically overhaul the US banking laws and that will probably be enacted in the next six months or so will be obsolete as soon as it is signed.