The year 2000 saw technology stocks tumble, potentially leaving more traditional investment outlets such as banks as victors of the so-called “new economy,” with community banks leading the way for steady, if low, stock prices.

However, the shaky stock market in 2000 contributed to a slowdown of the bank merger-mania that dominated much of 1999, according to analysts.

The pace of mergers has fallen 50 percent from 1999 figures, said John S. Carusone, president of the Bank Analysis Center in Hartford, Conn.

“There are a variety of reasons [for the drop-off in mergers], which include fewer buyers, those institutions that have been buyers are in the process of digesting what they already acquired so they’re distracted, and [an] inhospitable stock market that has beaten down the price earnings multiples on bank stocks,” he said. Added to that, the uncertainty of the direction of the economy is making some banks more cautious.

“The outlook is probably, I would expect, a higher level of activity next year. There’s a reasonable probably there will be a reduction of interest rates,” said Carusone. That will result in an upward-moving trend, he said.

Institutions that have held back or have completed their digestive processes on mergers will be in a position to resume acquisitions. In addition, he said, “the accounting rules regarding purchase vs. pooling accounting will be clarified most likely by the second quarter of [2001]. So I would expect a moderate increase in the level of activity.”

Perhaps the most historically significant merger came in November when the Boston Bank of Commerce announced its plans to merge with Founders National Bank of Los Angeles. The announcement came on the heels of BBOC’s acquisition of Peoples Bank of Commerce in Miami the previous year. The merger creates a foundation for the first national minority bank that is controlled and managed by blacks.

While 2000 brought with it new doubts about the new economy, many banks jumped into the technology fray nonetheless. Some leveraged increased consumer confidence in Web transactions into profitable ventures. Salem Five Cents Savings, which was among the first community banks in the nation to establish a strong Web banking presence, again took the lead last year when its Directbanking.com unit opened the first physical virtual bank on Congress Street in Boston.

“I think that there are two things that helped us get a leadership position. We were first into the arena. When others were pondering the value of the Internet, we took the plunge. The second thing is that having that position, we were able to gain some knowledge very quickly in determining what customers wanted … we were able to get customer feedback,” said William H. Mitchelson, chairman and chief executive officer of Directbanking.com, the electronic banking division of Salem Five Cents Savings Bank.

According to Mitchelson, banks are more successful at the Internet gambit than dot-com start-ups because they already have the capital and infrastructure in place to support the project.

‘Eventful Year’
In addition to watching out for security issues, protecting customer identity and the integrity of the transactions, Internet players also watched as state legislators filed bills to rein in the freewheeling atmosphere found on the Internet. Sen. Andrea Nuciforo, D-Pittsfield, chairman of the joint committee on banks and banking, filed legislation dealing with how Community Reinvestment Act requirement should be fulfilled by Internet-only banks. His proposal gives both Internet and brick-and-mortar banks more latitude in compliance – including supplying libraries with computers and Internet connections.

“The issue of CRA is one that’s constantly evolving,” said Mitchelson. But Internet banking will increase exponentially, he predicted. “Organizations that aren’t working towards innovation are working towards extinction,” he said.

In addition to market pressures, banks continued to deal with the ghost of regulations past, particularly the Gramm-Leach-Bliley Financial Modernization Act of 1999, which will bleed into fiscal year 2001. The deadline for implementation of privacy safeguards, a process that could be more expensive than costly Y2K preparations according to some experts, is July 2001. Among the requirements of the regulation is that individual customers be given notification of a financial institution’s privacy policy and the ability to opt out of information sharing. Many Massachusetts institutions have already geared up for what experts say will cost the industry $1 per customer notification, which could add up to millions in the commonwealth alone.

Locally, however, financial institutions at last know what is expected of them as the contentious issue of high-cost mortgages has been settled through regulation despite attempts to legislate safeguards against predatory lending practices introduced by Secretary of State William F. Galvin. Galvin’s bill, filed in March, went right out the door as Bank Commissioner Thomas J. Curry successfully introduced new regulations which will go into effect this month.

“It was an eventful year that saw the industry survive Y2K without any glitches, and beyond that we look to hopefully see the continued financial strength of the institutions in Massachusetts and look to fully phase in the high-rate loans regulations in January,” said Steven L. Antonakes, senior deputy commissioner of Administration and Policy at the state Division of Banks and Banking.

Bankers groaned as yet another non-bank competitor – the insurance industry – entered what traditionally had been an exclusive market. InsurBanc announced its intentions at the beginning of December to begin selling traditional bank products through insurance agents and will enter what analysts have called a “muddled” market. American Express, the U.S. Postal Service and America Online are a few of the dozens of companies that have entered the financial services industry this year, all to the chagrin of organizations like the Massachusetts Bankers Association, which complains that non-bank entities are subject to much less regulation.

Paralleling that argument is the ever-increasing number of credit unions seeking to expand their charters to include more members. Pro-bank advocates see this as an encroachment into their territory. The rate of expansion skyrocketed this year, two years after the Credit Union Membership Access Act was passed. By August, more than a dozen credit unions applied for permission to either merge or expand their memberships.

As a result, parity was also a major concern to financial institutions in 2000. Nuciforo filed legislation designed to scrape the mold off Massachusetts’ laws by updating them to eliminate unnecessary charter designations and mortgage categories and creating new categories which better reflect the current market, he said.

While merger activity slowed in 2000, the year in some respects was shaped by the continued fallout from the Fleet/BankBoston merger inked in 1999.

Sovereign Bank New England started the year off gaining a significant share of the market by its acquisition of 278 branches and 550 ATMs shaken off by Fleet Financial during its merger with BankBoston. It also scored in hiring John P. Hamill, the former president of Fleet Bank of Massachusetts, as its own New England chief executive officer.

But Sovereign hasn’t had calm seas during the transition process. In May it sold two dozen branches it said were outside its core markets; it recently announced the layoff of 500 people, 300 from the New England area. But the announcement caused hardly a tremor on Wall Street.

Lastly, with financial gurus predicting an economic downturn and whispers of recession, mortgage lenders can probably expect interest rates to fall, according to industry experts. As the refinancing boom ended and the number of such transactions dwindled in 2000, so did the number of mortgage lenders renewing their licenses by the April 15 deadline. Fourteen brokers and 12 lenders notified the division they would surrender their licenses.