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Massachusetts’ own Depositors Insurance Fund was a key tool in helping local banks reassure customers of the safety of their deposits while Silicon Valley Bank melted down last week. But its also lost some of the biggest names in local community banking in recent years.
Brockton-based HarborOne Bank said in a securities filing last month that the growth in the bank’s deposit size required it to withdraw from the DIF.
The DIF, an industry-sponsored fund for Massachusetts state-chartered banks, insures balances at member banks above the $250,000 FDIC limit. The only fund of its kind in the U.S., the DIF has 74 members.
Andrew Calamare, the DIF’s president and CEO, said the state law that created the private fund provides for a risk management process. Once banks reach a size that could pose a risk to the fund, he said, they must withdraw.
“Everyone is aware what the number is, and they can manage to it as best they can,” Calamare said. “It comes to a point where they have to make a move, and they’ve all done it very successfully without any disruption to consumers at all.”
Some mutual banks have also recently withdrawn from the DIF, including Bristol County Savings Bank, Cape Cod 5, Cambridge Savings Bank, Middlesex Savings Bank and Salem Five.
Joe Bartolotta, Salem Five’s director of marketing, said the bank received few questions from customers when it exited the DIF. He added that having funds in a mutual bank reassures customers of the safety of their deposits.
“As mutuals, where you don’t have that earnings pressure and you do retain your earnings, that gives people comfort they wouldn’t get from larger banks that are publicly traded and have shareholder expectations,” Bartolotta said.
When banks withdraw from the DIF, deposits above the FDIC limit continue to receive DIF insurance for a year. Money in certificates of deposit at the time of the bank’s exit remain insured until the CD’s maturity.
No Massachusetts bank has failed since 2010, when Lowell-based Butler Bank was closed by the Massachusetts Division of Banks.
As part of its withdrawal from the DIF, HarborOne said it also changed its bank charter from a savings bank to a state-chartered trust bank.
