A bill that would update Massachusetts’ banking laws is headed for a vote in the Senate any day now, and if passed, its supporters say it would put state-chartered banks on a more level playing field with their federally-chartered competitors.
A draft of the bill, titled “An Act Modernizing the Banking Laws and Enhancing the Competitiveness of State-Chartered Banks,” was largely undertaken by a task force of banking industry leaders put together by the Massachusetts Bankers Association (MBA).
Kevin Kiley, MBA executive vice president and COO, said the task force has devoted about two years to the project.
Past Is Prologue
This isn’t the first time Massachusetts has updated its banking laws, but it has been more than 30 years since the last such undertaking.
That was Chapter 155 of the Acts of 1982. Perhaps the most significant change then was the uniting of three distinct banking charters under one set of laws, so that savings banks, co-operative banks and trust companies would operate under the same laws, instead of their own discrete sections within the banking code.
It also opened the door to interstate banking and added new powers, like the authority for a mutual bank to convert to stock and inter-industry mergers and acquisitions.
But suffice to say, the banking industry has seen more than a few changes in those intervening 30 years.
“When the Massachusetts banking laws were last overhauled, we were in a different business era,” Ian Hecker, general counsel for Middlesex Savings Bank and a member of the task force, told Banker & Tradesman by email. “With the exception of ATMs and mainframe computers, there was very limited technology. Boards played a different oversight role. The regulatory burden on all banking institutions was not nearly as great as it is today, and small community banks feel those pressures more keenly than their national bank competitors due to their smaller economies of scale.”
“When the laws were written, we didn’t have debit cards, we didn’t have online banking, we didn’t have a lot of different things that we take for granted today,” said Michael Tucker, president and CEO of Greenfield Cooperative Bank. Tucker also chaired the committee.
The task force aimed to modernize and streamline the commonwealth’s banking laws, updating them to reflect changes in federal regulatory agencies, to eliminate redundancies between state and federal law, and to hopefully make it a little easier for community banks to adopt new technologies and stay competitive with their federally-chartered peers.
Updating References, Encouraging Collaboration
Combing through the commonwealth’s banking laws was no small or easy task, Kiley said. The MBA spearheaded the effort about two years ago, with considerable input from the Division of Banks. They formed a task force, divvied up the papers to pore over and conducted regional forums with Massachusetts bankers.
A portion of the bill is simply updating the current law – adding or deleting certain references as needed, for instance – but some of the updated provisions aim to make daily life a little more manageable at Massachusetts’ community banks, and to give them a leg up on federally-chartered institutions, which some estimate capture as much as half the deposits in Massachusetts.
Under this bill, banks would be able to sell back-office support services to each other, or create joint venture entities to pool resources for support functions, like technology or human resources, so community banks can better create economies of scale, Hecker said.
With an eye toward financial services technology, another provision grants state-chartered banks, with 30 days notice to the commissioner, the power “to engage in an activity or invest in any product or service which are related to or incidental to banking; not prohibited by law; and do not pose a substantial risk to the safety and soundness of the institution.”
“One section in the bill authorizes the board to determine what areas of oversight it wants to focus on in order to ensure the safety and soundness of the institution, rather than have specific report contents dictated by statute, and that will increase efficiencies and enhance the attention of the boards in areas where it is most needed,” Hecker said.
Of course, the banking overhaul couldn’t capture every area of regulation. Consumer protection measures and community reinvestment requirements were largely left alone, Kiley said.
Tucker said it was important to avoid the perception that the bill might take anything away from consumers.
At press time, the bill had cleared the House of Representatives and was sitting in the Senate Ways and Means Committee, and supporters are reaching out to key Senate members. Its advocates are hopeful the Senate can pass the bill before the Massachusetts legislature lets out for the summer recess at the month’s end.
Email: lalix@thewarrengroup.com
