A bill that would create new standards and requirements for Massachusetts bank mergers has elicited concerned reactions from industry practitioners and trade associations. But Rep. John F. Quinn, D-New Bedford, co-chairman of the Legislature’s Committee on Banks and Banking, says the bill is necessary to fill in the gaps of the merger approval process.

“An Act Relative to the Board of Bank Incorporation and Bank Mergers” was filed by Quinn on Dec. 1 and outlines four key provisions for bank mergers. First, the Board of Bank Incorporation’s composition would expand from its current three members to five by adding the state attorney general and a representative of the public appointed by the governor. Second, testimony provided to or presented before the board would be under oath and subscribed to under the pains and penalties of perjury.

The bill also would require all petitioners before the board to file, under oath, a statement containing projected employment levels of bank personnel for one, three and five years subsequent to approval of the merger petition. The statement from the acquiring institution would have to include projections of anticipated branch bank closings and estimated job losses in the commonwealth, including job reductions due to outsourcing of employment to locations outside of the United States.

The final provisions would require all acquiring financial institutions to make an amount equal to 1 percent of its assets located in the commonwealth available for call by the Massachusetts Development Finance Agency for a period of 10 years for the purpose of providing loans to the agency for loan financing, bond issuance, commitment guarantees or any other uses.

Quinn said there are holes in the existing approval process. The provisions, he said, were drafted because of what he has observed during a slew of recent mergers.

“It’s reasonable to request banks be held to these standards,” Quinn said.

Others familiar with the banking industry said it is clear why the bill was filed.

“It is an effort to deal with the fallout of several recent mergers,” said Boston bank attorney Stanley Ragalevsky, a partner at Kirkpatrick & Lockhart.

He noted the recent slew of mergers including Citizens Bank acquiring Cambridgeport Bank, Sovereign Bank taking over Seacoast Financial Services Co. and the merger of Bank of America and FleetBoston.

Ragalevsky said the modification to the Board of Bank Incorporation is “interesting,” because the state’s commissioner of banks has always been the dominant force on the board.

“I wonder if that [the bank commissioner’s influence] would change” as a result of adding new board members, he said.

If the attorney general were to sit on the board, Ragalevsky said there would be three political appointees who could outvote the bank commissioner.

“A change like this might make the process more politicized and focused on things like jobs and less on things like safety and soundness conditions,” Ragalevsky said. “If you change the basic composition [of the board], it will tend to politicize these decisions – at least with a bigger merger, certainly.”

Currently, the BBI consists of the state treasurer, the commissioner of banks and the commissioner of revenue.

Kevin Handly, a bank attorney and partner at Boston-based Goulston & Storrs, also questioned adding more people to the BBI. He said there already is enough difficulty getting action and decision on merger petitions and adding more board members may only exacerbate the problem.

Quinn disagreed, saying the board will still consist of an odd number of members to prevent deadlocks and pointing out that the attorney general is already involved in such decisions when there are anti-trust issues.

“This is not a political bill,” Quinn said.

Ragalevsky questioned whether the member of the public sitting on the board would be compensated and what kind of qualifications they would need to have.

Quinn said the job would not require much time and the public member would not be compensated. In terms of what qualifications the person would need, Quinn said he’s leaving that up to the governor.

Both Ragalevsky and Handly took issue with the provision requiring testimony to be given under oath.

Handly said it is unlikely that any prosecutor would prosecute a bank representative for failing to accurately predict the future.

“This is a misguided proposal,” he said.

Handly added that the requirement might also reduce the quality of the witness. A top bank executive like Chad Gifford, chairman of Bank of America, would probably not testify if threatened with the possibility of later prosecution, he said.

Ragalevsky said this particular provision is “well motivated” but would be difficult to enforce because projections are opinions, not facts.

“It’s a well-intentioned effort to try to address the issue,” Ragalevsky said.

Singled Out

Quinn defended the provision to require banks to testify under oath. Comparing it to a small-claims court matter where someone will testify under oath for a $1,500 claim, Quinn said it is appropriate to ask an institution with billions of dollars and a large effect on the public good to testify under oath.

“Is it so horrible to ask people to tell the truth?” Quinn said.

Ragalevsky also criticized the final provision requiring banks to set aside 1 percent of their assets located in the Bay State for the Massachusetts Development Finance Agency.

“It’s a hidden tax,” Ragalevsky said.

Ragalevsky said the provision discriminates against banks. If another type of merger took place, such as two mortgage companies consolidating, they would not be subject to the same requirement, he said.

“That strikes me as a bad idea,” Ragalevsky said.

Currently, banks participating in a merger are required to make nine-tenths of 1 percent of their assets available to the Massachusetts Housing Partnership. The money becomes available for housing loans and Quinn said he has not heard complaints about the current requirement. The new requirement that 1 percent of assets be made available to the Massachusetts Development Finance Agency would be in addition to the existing mandate for funding the MHP.

“[The new provision] is really modeled after that,” he said.

Citing the hole left in the New Bedford economy when Sovereign acquired Seacoast Financial, Quinn said mitigation money is not too high an expectation.

“It’s common now that mitigation or linkage payments are made when businesses come and go,” Quinn said.

Handly cited another problem with the bill, saying it would likely cause an out-of-state bank involved in a local merger to challenge the Massachusetts statute. He said there is no congressional legislation that authorizes states to regulate interstate banking.

“I’m hoping this is just posturing by a certain legislator and it will be recognized as such and will not progress,” Handly said.

Quinn conceded the bill could be challenged by an out-of-state bank, but said many future mergers will happen between two local, state-chartered institutions.

While the bill may make Massachusetts appear less attractive to out-of-state banks, Ragalevsky said there aren’t many banks that are looking to move to the Bay State.

The Massachusetts Bankers Association also weighed in on the bill recently and has expressed concern. The association has had preliminary discussion with Quinn.

“We are evaluating the bill. Clearly, it has wide-ranging implications for all banks doing business in Massachusetts,” said Kevin Kiley, executive vice president of the MBA. “Any future mergers or acquisitions could be subject to these new standards. The negative impact on [merger and acquisition] activity could put us at a competitive disadvantage, particularly smaller community banks that may need to merge in the future to remain competitive. Furthermore, why single out banks? This is another example of a legislative or tax burden that directly impacts banks but not other financial services firms like mutual funds, credit unions, finance companies, mortgage companies and insurance companies.”

The state Division of Banks had yet to review the bill and had no comment.