By Douglas J. Hajek, Davenport Evans Lawyer

Paul Volcker’s strategy for dealing with inflation was painful across America. And while it suffered along with every other state, in 1980, South Dakota found itself on the receiving end of a very pleasant surprise.  It was utterly astonishing when Citibank — the world’s largest issuer of credit cards — announced it would move its operation there in 1980.  Many believe it happened because South Dakota repealed its usury law to lure Citibank — a perception created by reports like this from the New York Times:

“The story began in the winter of 1980, when Citibank, frustrated [with New York’s usury law] looked afield for a friendlier state.  At Citibank’s urging, South Dakota promptly stepped forward, eliminating its usury ceiling and winning the bank’s credit card operations.”

Since this myth has been so aggressively promoted, it is worth examining the facts — which clearly establish that Citibank had nothing to do with the change in South Dakota’s usury law.  Here’s what happened. 


In 1972, I started a career in banking.  Those were the days of pots n’ pans deposit premiums, and bankers spent little time worrying about how much interest to pay on deposits because Regulation Q set the maximum, and nearly every bank paid it.  For most of the 1970s, the maximum rate for bank savings accounts hung around 4%, and for accounts at savings institutions, a quarter of a percent more.

By 1979 high inflation had been entrenched for nearly a decade, and there had been several high profile efforts to uproot it.  In August 1971 President Nixon used his presidential authority to impose wage-price controls.  He was afraid that if he didn’t do something, the Fed would impose tight money that would lead to a recession in 1972, the year he would be up for re-election.  The controls worked for a while, and Nixon was re-elected in his race against South Dakota Senator George McGovern.  When the controls came off in April 1974, prices quickly shot up even faster than before.

Nixon resigned in August 1974, with Vice President Gerald Ford succeeding to the Presidency. After Ford had been President for two months, in October he announced his “Whip Inflation Now” campaign to much fanfare.  We enthusiastically wore WIN campaign pins around the bank (for about a week).  The WIN campaign included measures to control costs — more food production, less energy consumption, and a requirement that all legislation be evaluated for its inflation-impact.  Later, President Jimmy Carter used a never before invoked authority in signing an Executive Order directing the Federal Reserve to impose consumer credit controls.  To show how little respect economic forces have for good intentions, none of these efforts were of lasting impact, and most did more harm than good.

Fed Chairman Paul Volcker

Things changed in August 1979 when President Carter decided to make Paul Volcker Chairman of the Federal Reserve.  Until then, the Fed’s traditional approach in carrying out monetary policy was to manipulate interest rates, particularly the Fed Funds rate. With inflation into the double digits, Volcker made an unusually radical break from the past.  He wanted to more directly control the money supply by focusing on non-borrowed bank reserves, thereby leaving the Fed Funds rate to float.  The Reserve Board’s decision to adopt this new procedure — labeled by Wall Street traders as Volcker’s “Saturday Night Special.” — occurred at a secret, hastily called special meeting on Saturday, October 6.

By December the Fed Funds rate and the Prime Rate had jumped to over 20%, with mortgage rates in the range of 15%.  So now, Regulation Q — rather than protecting banks by limiting what they could pay — was rapidly draining them of their deposits as their customers found other places to get better returns on their money.  The easing of Reg Q’s limits beginning in 1980 stemmed the tide of deposit withdrawals, but it also led to much higher money costs for banks, and soon banks were paying out more in interest on deposits than they were earning on loans.  Where usury applied, every new loan was a money loser for the bank; so naturally, borrowing became very difficult, especially for farmers and small businesses.

South Dakota Changes it Usury Law

These were the conditions when the Legislative Committee of the South Dakota Bankers Association met in November 1979 to discuss its priorities for the 1980 legislative session.  My bosses at Western Bank — T.M. and T.J. Reardon — invited me to attend the meeting with them. With money costs soaring, the usury limit was on everyone’s mind, and was first on the agenda.  But bankers were conflicted — they didn’t want to appear greedy by asking for another increase in the usury limit because they had just gotten the Legislature to go along with an increase from 10% to 12% in the 1979 session.

Mr. Reardon listened patiently while the other bankers talked.  After about a half hour, seeing that the discussion was going nowhere, he moved that the association propose a permanent solution — one that would exempt “regulated lenders” from the state’s usury limits.  The motion was seconded without delay by a gentlemen sitting directly across the table from us — TM’s brother-in-law, Chuck Burke, a distinguished Pierre banker and a member of the South Dakota Banking Commission. With little discussion and no dissent, the committee passed the motion.  I was not aware until twenty years later — when TM gave me a copy of his memoirs — that he had this all arranged with Mr. Burke ahead of time.  Mr. Reardon was worried if he had not done so, his proposal might have died for lack of a second.  His plan worked — with little discussion and no dissent, the committee passed the motion.

The bankers recruited Rep. Don Clements from the town of Armour to serve as the prime sponsor, and the usury bill was introduced into the 1980 Legislature on January 8, the first legislative day.  At the committee hearing when public testimony was taken before it went to the House floor — four bankers, two lobbyists, and the Chief Investment Officer of the South Dakota Investment Council all testified in favor of the bill.  Not a single person testified as an opponent.  It passed the House on Jan. 22 (59–8).  Then on February 6, the 22nd day of the 30-day session, it passed the Senate 30 – 0.  Having passed both houses, the bill now needed only the Governor’s signature to become law.

Marquette Bank Decision 

While this was happening, New York’s usury limit was causing huge losses in Citibank’s credit card operation.  Walter Wriston, its legendary Chairman, was desperate to find a solution.  Citibank had already lost a billion dollars in the credit card business, and the future looked even worse.  But Wriston could not convince New York Governor Hugh Carey to support easing that state’s usury restriction.  Governor Carey, a friend of Wriston’s, was sympathetic — he just saw no chance he could get the New York legislature to agree to any easing of the state’s usury law.

A United States Supreme Court decision the previous year gave Citibank options.  Marquette Bank — the Minneapolis bank owned by Carl Pohlad — was a successful credit card issuer, but was losing business to First National Bank of Omaha.  With Minnesota’s usury limit of 12%, Marquette charged an annual fee.  Nebraska’s limit was 18%, which made it feasible for the Omaha bank to offer a card without an annual fee.  When First National Bank of Omaha started offering an 18% “no annual fee” card to residents of Minnesota, Marquette Bank sued.

By the time the case made it to the United States Supreme Court, First National Bank of Omaha was represented by Robert Bork, who had served as the U.S. Solicitor General until 1977 — the year before the Marquette Bank decision.  During oral argument before the Supreme Court, it was evident Justice Thurgood Marshall was not impressed with Marquette Bank’s case.  It seemed to him that Marquette mostly had a marketing problem that it was trying to solve by upending the structure of the national banking system.  To make his point painfully clear, Justice Marshall presented Marquette’s lawyer with this rather blunt observation:  “I really feel Marquette Bank would have done better to take their case to an advertising agency . . ..”

The Court ruled in favor of Bork’s client, First National Bank of Omaha.  The Court held, in a unanimous decision, that under the National Bank Act the laws of the card issuer’s state of domicile determined the maximum rate, not the laws of the state where the cardholder lived.

The Douglas Amendment

There probably weren’t two people in South Dakota who gave a hoot about the Marquette case at the time, but it turned out to be one of the most important Supreme Court decisions in our State’s history.  Citibank, however, did care.  Because of the Marquette decision, it knew that the usury law in one state could be exported throughout the United States.

But the Douglas Amendment to the Bank Holding Company Act of 1956 prohibited Citicorp, as an out-of-state holding company, from coming into a state without an invitation from that state’s Legislature.  In other words, the Marquette decision and favorable usury laws would do Citibank no good without an invitation.  One other problem:  No state legislature had ever approved such an invitation.  Yet, as it was losing $100,000 per day, it became clear in January 1980 that Citibank could expect no relief from New York and would have to move.  Now it faced two questions:  First, was there a state that had more favorable usury laws?  Second, if so, would it be possible — on relatively short order — to get an invitation from one of these states?

As to the first question, it was well-known in-house that California had no limit on its consumer loan rates – but with that state being the home of Bank of America, Citibank’s leaders saw no hope of getting an invitation there.  So Citibank’s legal department began examining the laws of all the states to see if there were other options.  Being unaware that South Dakota was in the process of passing its usury exemption — they determined, on the basis of their existing statutes, that five states deserved a further look:  Rhode Island, Nevada, Hawaii, Missouri, and South Dakota.

As to the second question — getting an invitation — Rhode Island and Nevada were crossed off because their legislatures were not in session.  Hawaii was eliminated because, even if that state would invite Citibank, operating the credit card business from there would have been a logistical nightmare.  That left Missouri and South Dakota.  Both states had the additional advantage of being centrally located — an important consideration since Citibank’s cardholders were spread all over the United States.

Charles E. “Charlie” Long — Senior Vice President of Card Operations at the time, was Citibank’s point man.  Charlie preferred Missouri because he had previously been a TWA executive there for nine years, and had many contacts in business and government.  He had none in South Dakota, so Citibank scrambled internally to find someone who could help them make contact with our Governor.  Now in the second week of February, it had grown to an urgent matter because there were only a few days left in South Dakota’s 30-day legislative session. 

Citibank Meets South Dakota

How, in 1980, would a New York bank get connected with the Governor of a place so foreign to them as South Dakota?  Citibank’s formal approach turned out to be more convoluted than necessary, but they managed to get a meeting set for February 14.  (It probably wouldn’t have occurred to a New Yorker that if you want to talk to the Governor of South Dakota — you could just call him at home.  Janklow regularly took calls at home (even before Caller ID), and his home phone number was in the Pierre directory.

On February 14 — now the 28th legislative day and only 2 days left in the legislative session — Charlie Long cut short a business trip to Panama, and came to Pierre to meet with Janklow in the Governor’s mansion.  Charlie had never been to South Dakota, didn’t know anyone from South Dakota, and didn’t know anything about South Dakota.  That made Charlie and our Governor about even — because until that week, Janklow knew next to nothing about Citibank.

The Governor assumed Charlie was there because of the just-passed usury legislation.  But Charlie said that was not the purpose of his visit; he said Citibank had no mechanism to track state legislation as it was happening — so he didn’t even know about South Dakota’s usury bill.  Now Janklow was really puzzled.  Why was it so urgent for them to talk?  Charlie explained that Citibank needed to move to a new state but because of the Douglas Amendment it could not come without an invitation from the Legislature.  He was there to see if South Dakota would invite Citibank.

Now Janklow had to figure out what to do.  Dealing with the bankruptcy of the railroad that transported much of the state’s ag product, an ag sector struggling from impact of a grain embargo, and other challenges, the Governor was as eager to diversify the state’s economy and find new jobs as Citibank was desperate to find a solution to its problem.  But this was unlike anything the Governor had ever dealt with.  He had to determine what kind of a commitment to extract from Citibank, and worried that he would ask for too little.  More urgently, he had to figure this out:  With only two legislative days left, how could he get the Legislature to do something no state legislature had ever done, that is — to invite an out-of-state holding company to establish a bank in our state?

Gov. Janklow called on Jeremiah Murphy — a lawyer and prominent lobbyist from Sioux Falls, a trusted confidant, and a close friend.  Jeremiah told the Governor — with such a short time left in the session — that unless the Governor had the support of the South Dakota bankers, there would be no chance of getting the Legislature to approve an invitation to Citibank.  The Governor had to somehow convince the independent bankers and the regional banks that supporting the invitation was in their interest.  The 29th legislative day passed, and there was a 25-day break before the final day.  During this interim, the Governor and Jeremiah prepared the groundwork with legislators and bankers.

Charlie went back to Missouri, the state he favored.  Charlie said he wanted to go to Kansas City because “it had computer rooms, programmers, [a] good communication system, good labor pool, and so on.  Sioux Falls was an unknown.”  After spending a few days there — talking to the Governor’s staff, the Mayors of Kansas City and St. Louis, the leaders of Missouri’s legislature, and the bankers association — Charlie could see that Missouri would be a challenge.  With over 700 banks in Missouri at the time — and downright hostility among some of them — it would be extremely difficult to convince them that they should not oppose an invitation, much less to actively support one.

Back in South Dakota, Murphy told Janklow he should meet first with the Sioux Falls bankers to get their reaction.  On the morning of Friday, February 29, Janklow called Murphy to ask him to set up an afternoon meeting.  Jeremiah thought the Downtown Holiday Inn would be a good neutral off-site place to meet, but due to the short notice, the hotel didn’t have a good meeting room available — so he settled for the lounge on the top floor.  At the meeting, Janklow gave the Sioux Falls bankers a summary of Citibank’s plan, and told them that Charlie Long would be in Pierre the following Monday to discuss the matter with the Banker’s Association Executive Council.  Janklow asked if they would come to the meeting to hear-out the New Yorkers, and several agreed to do so.

Monday came and Charlie – this time accompanied by Citibank’s General Counsel Patrick Mulhern – was back in Pierre to meet with the Bankers Executive Council.  The Governor made it clear to Charlie that he (Janklow) couldn’t get this done by himself — Charlie would have to play a big part in convincing the bankers to support an invitation.  They met with the bankers in the Governor’s Conference Room.  Going into that critical meeting, Janklow had this little pep talk for Charlie:

“You’re coming out here with a Brooklyn accent.  We don’t like slick guys from Wall Street out here.  We’ve all seen The Music Man many times, and we’re not buying trombones from strangers.  You’ve got work to do.”

At first, several influential bankers were very vocal about their doubts — with concerns that Citibank would go after their customers.  For his part, Janklow emphasized all the benefits this could mean for South Dakota.  He also told the bankers they could kill it if they wanted to.  Charlie told the bankers Citibank would accept whatever restrictions they decided to impose.  Although he doubted Missouri would do it, he told them that if that state extended the invitation, Citibank would put the charter there — but would still establish an operation in South Dakota.

When the Q & A session was over, three bankers — Bill Dougherty, the former Lieutenant Governor and one of the founders of SunBank in Sioux Falls, Harold Torness, from the Sisseton bank, and Chuck Seaman, from the Warner bank — stood up in order and expressed their support for the invitation.  Janklow recalled:

“I’ll never forget those three in a row.  [Then] we went around the room.  It was just like everybody coming to the rail at a revival, one after the next, signing up for Jesus.  The next thing I know, they got around to the President (Glenn Waltner of Freeman) and he said, “’Well, when you left the room Governor, we were gonna hold a secret meeting and vote on it.  But it sounds like everybody but me has voted, and you can count me in.’”

Moments later, the Association’s Executive Council passed a resolution supporting a bill to invite Citibank.

Later, Charlie Long expressed how radically different the South Dakota bankers had been compared to what he encountered in Missouri.  His meeting with the bankers in Missouri was very unpleasant; he felt beat up by them.  In South Dakota, he saw everyone in the room together, and on the spot, he was able to address their concerns.

Work continued on the bill to invite Citibank — to make sure it contained all the limitations the bankers had requested.  On the very last legislative day (a day normally reserved for considering vetoed bills), the Legislature suspended its rules — allowing the bill to be introduced, and acted upon without the usual public hearings, and without the usual second reading.  And so HB 1370 was introduced, passed by the Senate (33–1) and the House (64–2), and signed by the Governor — all in time for an early lunch on March 12, the last day of the 1980 legislative session.  With an emergency clause, it went into effect immediately.

Next Steps for Citibank

But there was still a lot of work to be done.  Citibank still had regulatory approvals to obtain, and a lot was riding on this for South Dakota.  Citibank had assured Janklow it would hire a minimum of 300–500 South Dakota workers, but with the potential for significantly more if the Federal Reserve would approve moving the entire credit card operation to South Dakota.  Neither commitment was in writing though — it was all based on a handshake.

Complicating things was the fact that some members of Citibank’s board were not thrilled with the idea that they would be moving this massive operation and many jobs to South Dakota in the midst of a national recession.  They were taking a lot of heat from the public and the New York media.  So Governor Janklow had to continue to give this a lot of attention, so much that the Citibank board began to refer to him as the Director Emeritus.

The New York Times seemed shocked that Citibank would actually go through with this.  Here’s what the Times reported on June 29, 1980:

“It sounded like saber rattling, but Citibank really means it:  It has signed a one-year lease for three floors of the . . . Western Bank building . . . in downtown Sioux Falls . . . that will serve as a temporary base of operation . . . [and] is negotiating the purchase of 10 acres . . . where it plans to build its permanent headquarters. . ..  And Richard D. McCrossen, the newly-appointed head of the operation expects to close on the purchase of a home in nearby Brandon next month.”

The New York Legislature’s resolve began to weaken when Citibank announced it was leaving, and on November 24, 1980, it enacted a moratorium on its usury limit.  But of course by then it was too late.  On February 19, 1981, Citibank (South Dakota), N.A. received its charter from the Comptroller of the Currency, and officially opened for business.

Richard D. McCrossen 

The day the Citibank bill passed, Charlie Long called Richard McCrossen (the man who would become Citibank South Dakota’s first President and CEO) and blurted out “Dick, you’re going to love South Dakota,” and hung up.  I’ve wondered if that was a prediction or an order.

McCrossen got Citibank off to a great start as he led the organization’s move here, and built the operation into the most profitable part of Citibank’s business.  He was a politically astute businessman, an engaging and charming New Yorker, and someone who was determined to make Citibank work for South Dakota as well as South Dakota did for Citibank.  It was evident from the community involvement of the entire Citibank South Dakota executive team that this was a commitment they all shared, and it became a permanent part of the corporate culture of the Sioux Falls bank.

Walter Wriston, Citibank’s Chairman, and John Reed, his successor, were pleased with how well things were turning out in South Dakota.  Large New York companies bad-mouthed Sioux Falls and warned Wriston that South Dakotans would be undependable workers, but Citibank found the opposite to be true.  One executive observed that “South Dakotans worked harder than New Yorkers” — which allowed the Sioux Falls bank to perform the same work with fewer employees. Wriston was also impressed that a letter could make it from Long Island to Sioux Falls a half-day faster than a letter from Long Island to Manhattan.

South Dakota’s Position Today

Subsequent to Citibank’s initial move to Sioux Falls, there have been several key banking developments for South Dakota.  In 2004, Wells Fargo, N.A. designated Sioux Falls as its Main Office.  Its CEO at the time — Dick Kovacevich — had been a top executive with Citibank and was personally familiar with the quality of Citibank’s South Dakota experience.  In 2008, Wells Fargo acquired Wachovia Bank, and consolidated the two banks in 2010, which made it a $1.2 trillion bank with its main office in Sioux Falls.  Then in 2011 Citibank (South Dakota) merged with Citibank, N.A., and Citibank, N.A. designated Sioux Falls as its Main Office.  It, too, was a $1.2 trillion bank.

Now with two of the four largest financial institutions in the United States designating Sioux Falls as their main office, South Dakota now ranks #2 in banking assets, closely behind Ohio, the home of JP Morgan’s charter.

Banks have come here because South Dakota has had a solid reputation established over three decades, with all the components of a good environment for banks — reasonable regulation and taxes; a talented, educated, experienced and conscientious workforce; and a strong communications, technology, and distribution infrastructure.  Just as important — our policymakers have for the most part been predictable in showing their belief in the value of an industry that’s benefited our state in so many ways.

An Extraordinary Journey

The 1980 legislation and the journey of Citibank to South Dakota is an extraordinary part of our State’s history.  And while it was never part of anyone’s grand design — there can be no doubt that the 1980 legislation has had a transformational impact on South Dakota well beyond anything anyone could have imagined.  It has brought billions of dollars to our state, opened the door to many promising careers, significantly expanded the technological capabilities of our state, and greatly enhanced our state’s investment in research and education.  It has also brought us closer to the larger world — and given us a new sense of the potential of our community.

Yet this could have simply been a missed opportunity that none of us would have ever heard about if Governor Janklow — in that moment on Valentine’s Day 1980 when he met with Charlie Long — had done something very un-Janklow-like, and said: “Charlie, with only two legislative days left, there is no way I can get this done.”

But the meeting would have never happened at all if it hadn’t been for the actions of Paul Volcker.

*  *  *  *  *  *  *  *  *

SOURCES:  Gary Bingner, South Dakota Banking:  The Lowdown of High Finance in Middle America, A History of the Citibanking Revolution, 1980-1983; Phillip L. Zweig, Wriston: Walter Wriston, Citibank and the Rise and Fall of American Financial Supremacy, Crown Publishers, Inc., Copyright © 1995 by Phillip L. Zweig; Ethan G. Sribnick, A Legacy of Innovation, Copyright © 2008 University of Pennsylvania Press; The New York Times; David E. Lindsey, Athanasios Orphanides, and Robert H. Rasche, The Reform of October 1979: How It Happened and Why; South Dakota Legislative Research Council, Legislative Record, 1980 Session