It’s all about vision. That’s how Daniel J. Forte, president of the Massachusetts Bankers Association, sees recently proposed regulatory changes that would alter state bank charters to keep pace with industry changes allowed by federal Financial Modernization legislation.
The changes were proposed by Thomas J. Curry, commissioner of banks, to “authorize state-chartered banks to exercise additional powers and engage in financial activities that are permissible for a national bank with its main office in the commonwealth … The proposed new activities include but are not limited to non-controlling or minority investments in certain entities, either directly by the bank or through a financial subsidiary and expanding the financial activities which may be engaged in by a bank through a financial subsidiary.”
“The term ‘financial’ … deals with insurance, security transactions and traditional banking-related activities. Through a subsidiary they can do everything that’s financially related except insurance underwriting, real estate investment and merchant banking,” said Forte.
“This allows an infrastructure for community banks to grow in the future,” he said. In effect, the changes would create parity between state-chartered and national banks.
“Parity” is a word used often by banking associations seeking controversial changes in the way banks are allowed to compete with other financial services providers and credit unions. But in this instance, support for Curry’s plan seems almost universal. In fact, the public hearing on the regulation, held last week, lasted about 10 minutes with only one person – MBA Senior Vice President – giving oral comment.
“We believe it is essential that state-chartered banks gain the ability to offer as wide an array of products and services as possible, consistent with appropriate safety and soundness considerations,” read the statement. “To provide anything less would relegate our community banks, which are overwhelmingly state-chartered, to second-class status, and ultimately could drive many of these institutions to reevaluate whether to remain a state-chartered institution.”
Changing Nature
Specifically, the revisions would allow the same subsidiary powers granted to nationally charted banks by the Gramm-Leach-Bliley Financial Services Modernization Act of 1999.
“It’s another step forward in expanding the opportunity of Massachusetts banks,” Floreen said after the brief hearing.
“We’re hopeful that the Division [of Banks] will act shortly after the comment period expires,” he said. The written comment period ends Nov. 16.
But even after the regulations become effective, don’t expect anything to happen soon, said Forte.
“I think it’s more an important reflection of the changing nature of the financial services industry right now,” he said. The regulation would clear the way for future products and services a state bank may want to offer through a subsidiary, which is easier than establishing a holding company. This is because a holding company is subject to additional regulation whereas the subsidiary is regulated in conjunction with the bank, he said.
On the national level, Gramm-Leach-Bliley created a “flexible” regulation for offering different financial services, said Forte. ” … We need to make sure that we can match that …” he said.
Joseph Leonard, counsel for the Division of Banks, said that the changes aren’t extensive but will allow the state to remain competitive.
“Are these things that every single state-chartered bank is interested in? Probably not, but it gives the option,” he said.
“[The proposed change] is more preparing the state-charter bank system for the future. It changes the direction of the industry for the future, but nothing is going to happen in the short run … but it’s a very important adjustment for community banks,” said Forte.
