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Citibank, South Dakota and the Origins of Financial Deregulation
"Homes across the land," The New York Times reported in the early 1980s, "are flooded with mailings from South Dakota offering ... Mastercards - at a $20 annual fee and finance charges of 19.8%." How did a Great Plains state with a population smaller than many counties in the Northeast corridor come to export a cornucopia of consumer credit in addition to its usual superabundance of beef, hogs, small grains and other assorted agricultural staples? In the spirit of Enlightenment poet Alexander Pope's famous epitaph for Sir Isaac Newton: Bill said, "Let Citibank come!" and all was plastic.
The real story is, of course, more complex than that faux epitaph suggests. In early 1980, Citibank decided to relocate its massive credit card operations, which included some six million Mastercard and Visa accounts spread across all 50 states, to Sioux Falls, South Dakota's largest city. The Comptroller of the Currency approved Citibank's decision in November 1980, and the Federal Reserve did likewise in January 1981. Citibank South Dakota began operations in rented space in February 1981 and moved into the first of the three new buildings it would construct in the city that June.
Stunned by the sudden move, industry observers came to believe that Citibank had paid South Dakota to repeal its usury law, its cap on the rate that lenders could lawfully charge to borrowers. Although demonstrably false, the notion proliferated widely because it offered an easy explanation for Citibank's decision to invest in a state known more for harsh winters and impoverished Indian Reservations than financial acumen.
The myth of South Dakota's capitulation to the emerging megabank also made for great political satire, including an infamous fake news story that claimed that the South Dakota state legislature had voted to become a wholly-owned subsidiary of Citicorp. According to the faux article, the state was thenceforth to be called Dakotacorp, its iconoclastic Republican governor Bill Janklow was to be its highly-paid president and Pierre, South Dakota's capital, was to be renamed Wristonville after Citibank CEO Walter Wriston.
In fact, South Dakota's legislature moved to eliminate the state's usury cap before Citibank expressed any official interest in moving to Sioux Falls, and the giant...