The majority of the Massachusetts Congressional delegation has joined banking regulators and trade groups in opposing federal examination fees on bank holding companies and state-chartered banks. President Bill Clinton included the fees in his proposed budget for fiscal year 2001 and has included similar measures that have been defeated over the last five years.
Rep. Barney Frank, D-Newton, drafted a delegation letter against the proposal last month, saying the fees would weaken the dual banking system.
We believe that further exam fees at the federal level would constitute an unfair burden to cover a cost that is already covered at least once, if not twice, the congressmen wrote.
Two members of the delegation, Frank and Somerville Democrat Michael E. Capuano, serve on the House Committee on Banking and Financial Services. Committee Chairman Jim Leach, R-Iowa, has spoken out against the measure.
Medford Democrat Edward J. Markey was the only member of the 10-member delegation who didn’t sign the letter.
Bay State Sens. Edward M. Kennedy and John F. Kerry also issued a joint missive against the fees. Kerry serves on the Senate Banking, Housing and Urban Affairs Committee.
Because Massachusetts banks would be put in a position of having to decide whether to pay the additional exam fees or convert to a federal charter, such an assessment would pose a direct threat to the state-federal dual banking system, the senators wrote in a letter to Sen. Pete V. Domenici, chairman of the Senate Budget Committee.
Opponents of the proposal say the new exam fees would amount to double taxation. In the current exam structure, state-chartered banks pay exam fees to state regulators. National banks pay exam fees to the Office of the Comptroller of the Currency. Banks indirectly pay for FDIC exams, which are covered through the agency’s surplus in insurance premiums. The FDIC has the ability to charge state-chartered banks for exams but has not assessed fees because the insurance fund is self-supporting.
The proposal would require holding companies to pay exam fees to the Federal Reserve. Currently, institutions that are members of the Federal Reserve pay for exams through interest foregone on required reserves.
The budget proposal released last month estimates the new fees would raise $938 million from bank holding companies and state-chartered banks over the next five years.
The Clinton administration has proposed the measure for each of the last six years, but each time the fees have been left out of the final budget. The repeated battle bankers have waged against the fees gives some a feeling of deja vu.
There’s a characterization that the taxpayers are picking up the tab here, said William J. Wagner, president and chief executive officer of Chicopee Savings Bank. The FDIC picks up the tab out of their own fund. The money that funds FDIC comes from banks.
The measure would exempt banks that have less than $100 million in assets. In Massachusetts, more than 68 percent of banks have more than $100 million in assets. Wagner’s bank has four branches and $265 million in assets.
It’s like the old double dip, Wagner said. Nobody does it better than Uncle Sam.
The Massachusetts Bankers Association estimates that the proposed measure would more than double fees for state-chartered banks, which paid $9 million in exam fees to the Division of Banks last year. The exemption for banks under $100 million in assets is risky, said MBA President Daniel J. Forte, because once they put in a number like that they could take it out.
The administration would term it a user fee, like a user fee at a national park, Forte said. But if it looks like a tax and sounds like a tax, it is a tax.
The proposed measure would affect 83 percent of Bay State banks in some way. Because it would create new fees for state-chartered banks and for bank holding companies, some institutions would be required to pay fees two or three times. A state-chartered bank that is owned by a holding company would pay exam fees to state regulators and would pay a fee for the bank and a fee for the holding company.
The worst-case scenario would be a holding company that has a federal savings and loan underneath it, a state-chartered bank and a national bank, Forte said. The holding company would have to pay exam fees to the Fed. The state-chartered bank would pay to the Division of Banks and the FDIC. The national bank would pay to the OCC and the savings and loan would pay to the OTS.
Forte is optimistic that there is enough political muscle to remove the measure from the final version of the budget, as in past years. In addition to most of the Massachusetts delegation, House Banking Committee Chairman Leach has gone on record against it.
This was a bad idea in the past, and it remains a bad idea this year, Leach said. It serves to undercut the dual banking system while raising costs for banks and their customers.
However, the MBA and other trade groups have not relented in their opposition for fear that the measure could gain enough momentum to succeed. The issue remains high on the MBA’s legislative agenda.
‘Stealth Legislation’
The new fees would give nationally chartered institutions an advantage and weaken the dual banking system, opponents say. The Conference of State Bank Supervisors has been one of the most vocal opponents of the measure. Massachusetts Commissioner of Banks Thomas J. Curry, the association’s chairman-elect, is also on record against the proposal. Curry will likely carry the banner against the fees when he becomes the association’s chairman in May.
We don’t believe it’s warranted, said Senior Deputy Commissioner Steven L. Antonakes. It essentially comes down to double-billing. To bill state-chartered institutions in such a way undermines the strength of the dual banking system. The cost of supervision in terms of federal regulation is paid through deposit premiums.
Massachusetts is the only state that assesses exam fees based on risk, using an institution’s financial safety and soundness rating to determine how much it should pay. At this point it is unclear how the size of the new federal fees will be determined.
The MBA estimates that if the measure is enacted, it would cost Bay State banks about $10 million a year. Faced with the new fees, state-chartered banks may decide to convert to national charters to avert the pricey fees, Forte said.
If you want to have a debate on the merits of the dual banking system, I think there’s ample ammunition about the value of the savings bank charter and cooperative bank charter, but don’t create stealth legislation that really begins to dismantle the dual banking system, Forte said.
