Bills moving through the Legislature would require interstate reciprocity before banks based outside the state could branch into Washington.

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State lawmakers are working to close a loophole that allows out-of-state banks to branch into Washington through what are known as “phantom banks.”

Proposed legislation would allow out-of-state banks to open branches here only if their home states allow Washington banks to branch into them.

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A phantom bank is one organized in Washington by an out-of-state banking company. As soon as the phantom bank is established, it is merged into the out-of-state bank and simply becomes another branch.

The strategy is cheaper than buying an up-and-running Washington bank.

Some banks in this state say allowing the maneuver puts them at a disadvantage.

This week, bills to close the phantom-bank loophole advanced out of committees in the state House and Senate. The bills are sponsored by State Sen. Harriet Spanel, D-Bellingham, and Rep. Steve Kirby, D-Tacoma.

Some Washington bankers hope legislation here will prompt Oregon and other states to allow greater ease of movement across borders. But the head of the Oregon Bankers Association said that’s not likely right now.

“Reciprocity is off the table at this point,” said association President Tom Perrick.

He points out that banks wanting branches in Oregon can buy a bank, and that he knows of only one instance in the past decade when an Oregon bank used Washington’s loophole to branch here.

The Washington Department of Financial Institutions knows of fewer than 10 cases of phantom banks opening here since 1998.

Two banks have applications pending in Washington for new banks they intend to turn immediately into branches. They are Center Bank of Los Angeles, which has applied to open a bank in Lynnwood; and Panhandle State Bank of Sandpoint, Idaho, which wants to open a bank in suburban Spokane.

To hear David Williams tell it, the loophole allowing banks to branch into Washington without reciprocity from Oregon is a serious problem.

As chief executive of ShoreBank Pacific in Ilwaco, Pacific County, he would love to have branches across the Columbia River but cannot without buying a bank. That’s too costly, he said.

“We’ve got as many customers in Oregon as Washington, and not being able to take deposits in Oregon really impacts us,” Williams said.