Forget about weight loss and browsing social media during work hours: Massachusetts’ banks and credit unions have a far loftier resolution this year, and it centers around municipal deposits.
Currently, about $5.2 billion in public deposits sits in the vaults at more than 120 Massachusetts-based banks and another $6 billion to $7 billion is kept at the Massachusetts branches of larger multistate banks. Through the state’s Small Business Banking Partnership, about $373.7 million in state reserve funds is invested at 53 community banks with the intent that those banks will then lend that money out to small businesses.
Having recently won a victory in interstate branching, the state’s credit union industry would now like a shot at the municipal deposit market. Several legislative efforts pending on Beacon Hill would give them that opportunity.
While one proposed bill applies only to federally-chartered credit unions, the intent is more or less the same: to amend a portion of the Massachusetts general law that deals with municipal finance to add credit unions to the list of those financial institutions that can accept municipal deposits.
The way Michael Lussier, president and CEO of Webster First Federal Credit Union in Worcester, sees it, federal credit unions like the $821 million Webster First should already be able to accept municipal deposits.
“It’s a matter of interpretation,” he said. “I think some of the legislative changes are just trying to correct the intent of the existing statute.”
While federal law – the Federal Credit Union Act, specifically – allows credit unions to accept municipal deposits, state laws on the subject are a patchwork.
“Federal credit unions can already accept municipal deposits. That’s in the Federal Credit Union Act. A lot of state laws have to amend the law dealing with municipalities and local governments because that will define where they can deposit their money,” said Keith Leggett, an economist and consultant formerly with the American Bankers Association.
According to a 2013 report out of the Filene Research Institute, public deposits in commercial banks totaled around $433 billion and made up 5 percent of commercial bank deposits, compared with $1.5 billion and 0.2 percent for the credit union field.
Some states limit the amount of public funds that can be deposited, up to the insured limit, and yet others require collateralization above those insured limits, meaning that smaller credit unions would be effectively shut out of that market, Leggett said.
According to Paul Gentile, president of the Cooperative Credit Union Association, Massachusetts is in the minority. He said that 33 other states allow credit unions to accept public deposits and furthermore, municipalities in Massachusetts have several times approached the association’s members over the issue.
“They’ve been asking for it for years. They’re kind of confused, and they don’t really understand why a credit union can’t accept public funds,” Gentile said. “We just want the ability to compete for that business.”
Death And Taxes
Of course, the Bay State’s credit unions would be more than happy to accept public deposits, especially with Bank of America exiting a good deal of the public deposit market in Massachusetts, reported last fall by the Boston Globe.
Paraphrasing Tip O’Neill’s aphorism that “all politics is local,” Robert Cashman, president and CEO of Metro Credit Union, suggested that “all banking should be local” and said, “Wouldn’t it be great to keep Massachusetts deposits held locally here in Massachusetts?”
With more than $1.4 billion in assets, Metro is the largest state-chartered credit union in Massachusetts and would naturally like a shot at that deposit relationship. So would the $6.5 billion Digital Credit Union in Marlborough, said spokesman John LaHair.
For credit unions, the public deposit issue is about parity, but bankers charge that the playing field is already uneven. Granting credit unions the ability to accept public deposits would unfairly advantage large, tax-exempt credit unions over smaller, tax-paying community banks, they say.
“They’re getting the benefit of public deposits to fund loans against banks who paid the taxes they’re using,” said Kevin Kiley, chief operating officer of the Massachusetts Bankers Association. “This is a fight between community banks on Main Street against tax-exempt, bank-like credit unions.”
Though credit unions might point to certain banking behemoths from Charlotte, North Carolina that don’t want to accept small municipalities’ deposits, Massachusetts has no dearth of Main Street community banks ready to meet that need, Kiley said.
But credit unions point out that they do pay property taxes and payroll taxes, they make small business loans in their communities, too, and they counter with their own proposition.
Cashman said, “I would suggest that if this is such a great advantage, [they can] convert to a credit union and join us and we can all work together.”
Editor’s Note: An early version of this story did not include Kevin Kiley’s full name and title; he is the chief operating officer of the Massachusetts Bankers Association. We apologize for the omission.
