ACB: Press Releases

Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release June 24, 2003 #03-25
E-mail: [email protected]

AMERICA’S COMMUNITY BANKERS SEEKS PROTECTION FOR MUTUAL SAVINGS BANKS FROM PRESSURE TO CONVERT

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WASHINGTON, D.C. — America’s Community Bankers urged a joint committee of the Massachusetts legislature today to abandon a bill that would have the unintended consequence of fueling pressure on mutual savings banks in Massachusetts and nationally to convert to stock institutions.

“The bill would alter the conversion process for Massachusetts’ mutual savings banks in a way that would harm the savings bank, its community and its depositors,” said Charlotte Bahin, senior vice president for regulatory affairs at America’s Community Bankers, testifying before a hearing of the Joint Committee on Banks and Banking.

And, Bahin added that there are potentially unintended consequences for mutual institutions outside of Massachusetts. “To the extent that ‘professional depositors’ who seek a windfall see that pressure to convert can successfully be brought in Massachusetts, they will try it in other states,” she said.

The bill, S. 26, would require converting mutual savings banks to provide free distribution of the institution’s capital to depositors on a pro rata basis in accordance with their deposits.

America’s Community Bankers, which represents more than 90 percent of the nation’s mutual banks, strongly supports preservation of the mutual institution charter. “Our members feel just as strongly that every insured depository institution should have the choice to convert its charter. . .when it is in the interest of the institution to best fulfill its business plan,” Bahin said.

“Each mutual institution should have the ability to decide to convert or not convert based on the needs of the institution, its operating strategy, its need for capital and its plans for the future, not because pressure from depositor groups or others is being applied,” she added.

Bahin explained that the most compelling reason for a mutual bank to convert to a stock charter is to raise capital to grow, acquire other institutions, offer new products, or meet other needs as determined by the bank’s board and management.

“In fact, the bill would create a situation in which the motivation for conversion likely would be driven by pressure to convert by those persons seeking a windfall rather than the best interests of the mutual bank and the community it serves,” said Bahin. “S. 26 would turn back the clock and would create a disruptive environment for mutual institutions.”

Another significant concern, Bahin said, is the possibility of regulatory arbitrage. “Management and the boards of mutual institutions will start looking at whether the Massachusetts savings bank charter is the best charter for the institution’s needs. They may decide that the pressure to convert from depositors who only seek a windfall and not the best interests of the institution is too disruptive, and as a result may decide to convert to a federal charter.

“While this would preserve the mutual charter, it would harm the dual banking system, and would destabilize mutual savings banks for no productive reason. More importantly, it would take away the choice that management and the board should have to run the institution in the way that best meets the needs of the institution, the depositors and the community.”

Click here to read the testimony

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

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