The Depositors Insurance Fund and the Co-operative Central Bank see their proposed merger as a way to increase efficiencies for member banks.

After 85 years operating separately to insure deposits in Massachusetts banks, the state’s two insurance funds have decided to merge.  

The Depositors Insurance Fund and the Co–operative Central Bank plan to join forces to create one organization to insure bank deposits exceeding the amount insured by the FDIC. But before that can happen, the Massachusetts legislature must approve the merger. 

“We feel that it is best for depositors, the two organizations, the board of directors and the members to put the two institutions together,” said David Elliott, president and CEO of the Depositors Insurance Fund. 

Born Out of Crises 

The two funds were established by the Massachusetts legislature in 1932 during the Great Depression and began insuring deposits in 1934. The DIF insures small and mid-sized savings banks, while the CCB works with cooperative banks. Through 1985, the funds insured the entire amount deposited in member banks. Beginning in 1986, at the start of the savings and loan crisis, the two organizations became excess deposit insurers. Today, the FDIC insures the first $250,000 in a customer’s account, and the DIF and CCB cover amounts above that threshold. 

During the country’s savings and loan crisis, 19 DIF member banks failed, Elliott said. The fund paid out $52 million to more than 6,000 customers. Since then, the DIF has not had to pay customers at any member banks. 

More than 200 banks once belonged to either the DIF or the CCB, Elliott said. Now, the two organizations combined have about 90 members. Merger discussions began between Elliott and CCB President and CEO Andrew Calamare more than five years ago. Like many banks that have consolidated over the years, the DIF and CCB see the merger as a way to increase efficiencies for members. Eventually there would be one office, one board and a smaller staff. 

Legislation Needed 

Owned and funded by the member banks, the private entities are not government agencies. But the original statute establishing them had no provision allowing them to merge. So, Elliott and Calamare turned to the legislature. 

Bill H.1049 was reported favorably out of the legislature’s Joint Committee on Financial Services in July. It now sits in the House Ways and Means Committee. 

Having separate entities agree on the merger made the final decision easier for legislators, Financial Services Committee co-chair Sen. James Welch (D-Hampden) said. The consumer protection DIF and CCB provide helped sway the committee, Welch said, adding that consumer protection bills tend to receive priority consideration in the Senate. 

“[Deposit insurance] helps with the stability of the entire banking market,” Welch said. “It gives consumers that much more confidence in the banking system and that much less concern about what would happen to their money.” 

Succession Not a Driver 

Elliott said while this might not be the most important bill on Beacon Hill, it could be the simplest.  

“It is not complex, it does not require any funding from the commonwealth and we are not asking for expanded powers,” Elliott said. “All we’re saying is there’s this technical change that we ask you to make so we can put these two organizations together.” 

Elliott, who joined the DIF in late 1993, said he would like to see the merger completed by the end of the year. He then plans to retire, and Calamare, who was the state’s bank commissioner from 1987 to 1990, will lead the combined organization. Elliott said his retirement was not a driver in the decision to merge. He did say if he had to select “the perfect person” to lead the organization, “it would be Andy.” 

Diane McLauglin

The premiums paid by member banks are similar to the FDIC assessment, about 2 percent. Where members will benefit is with reduced operating costs, though Elliott expects it will take a couple of years for efficiencies to be realized. The CCB is located in downtown Boston, and the combined organization would move to DIF’s Woburn office. He expects to eventually have fewer than 10 employees. The DIF currently has nine employees and the CCB has four, Elliott said. 

Both organizations meet regularly with the FDIC and Massachusetts Division of Banks and rely on their resources for a full understanding of the risks posed by member banks. 

Not all banks can use the insurance funds. The DIF and CCB set a threshold of a little over $1 billion in excess deposits for each member. Recently, Brookline Bank approached the threshold and decided to leave the DIF. When that happens, a bank’s deposits are insured for a year, and certificates of deposit are insured until their maturity. 

If a bank is domiciled in Massachusetts, branches located in other states can insure their deposits as well.   

“It is a very valuable product to our members,” Elliott said. “It really differentiates them in the marketplace, and it’s become increasingly more popular as banks move more and more into commercial lending and are soliciting and securing commercial deposits from savings banks.”