By Linda Goodspeed
Mergers at both the federal and New York banking regulatory levels have prompted a number of federally chartered thrift institutions to switch to a New York charter.
Banks operating in New York have the choice of having either a state or federal charter. Charter conversions, from either state to federal or federal to state, are nothing new, but in recent months, the New York Department of Financial Services, which oversees the state’s banking industry, has reported a surge in applications from federally chartered banks seeking state charters.
The interest among federal banks in moving to a state charter seems to be related to the recent merger in August 2011 of the Office of Thrift Supervision (OTS), which had been the primary regulator of federal thrift institutions, into the Office of the Comptroller of the Currency (OCC), which is the primary regulator of national banks.
“There were all kinds of rumors that the exam process under the Office of the Comptroller of the Currency was going to be a nightmare, a beast, impossible for small institutions,” said one New York bank president, who asked not to be named.
The federal regulatory changes coincide with changes at the state level. Regulation of state chartered banks is now centralized within the new DFS, formed in October 2011 from the consolidation of the state’s banking and insurance departments.
“We view the rationale for federal savings banks and associations trending toward the New York State charter, and to DFS as regulator, because of our greater accessibility, responsiveness and better understanding of the dynamics of the New York marketplace, compared with the Office of the Comptroller of the Currency, a federal agency responsible for regulating a much larger number of institutions located across the United States,” said a DFS spokesperson. “Because we are closely attuned to the challenges faced by local institutions, DFS is better able to provide supervisory guidance and support.”
Michael Hosey, president and CEO of Elmira Savings Bank, the first federally chartered bank to receive a state charter under the new DFS, told the Elmira Star Gazette that the conversion “will reduce regulatory uncertainty for the bank in the aftermath of the dissolution of the Office of Thrift Supervision.”
“It will enable the bank to be regulated by a regulatory agency closely connected to the needs and circumstances of community banks operating in the state of New York,” Hosey said.
In addition to Elmira Savings Bank, DFS is currently processing state charter applications from NorthEast Community Bank, Cross County FSB and Dime Savings Bank, and is discussing charter conversions with several other federally chartered institutions.
Changes in regulatory oversight are not the only reasons behind some of the charter conversions.
Kenneth A. Martinek, president and CEO of NorthEast Community Bancorp, Inc., the holding company that owns NorthEast Community Bank, said NorthEast is switching to a state charter for strategic, not regulatory, reasons.
NorthEast has four branches in New York state and three in Massachusetts, with plans to open more in the Bay State in the next two to three years.
“Massachusetts is ripe with small business lending opportunities,” Martinek said. “We are growing our Massachusetts franchise very rapidly.”
But under a federal charter, that growth could be curtailed, he said.
“The difference in charters has a lot to do with what you are allowed to do under a particular charter,” Martinek said. “We are a multi-family, mixed-use, commercial lender. Under a federal charter, we are limited to commercial lending of 10 percent of assets. With our growth plans in Massachusetts, it is only a matter of time before we bump into the 10 percent of assets rule. The New York state charter does not have that prohibition on commercial and industrial lending.”
Under a state charter reciprocal agreement, Martinek said NorthEast will be able to operate in both New York and Massachusetts with a New York charter. As a bonus, Martinek said the New York state charter fees are about half the federal charter fees.
“We save money and don’t run the risk of violating the statute involved with C&I lending,” he said.
Martinek said federal regulatory changes did not figure into NorthEast’s charter conversion plans.
“It’s just coincidental,” Martinek said of the regulatory changes. “Business-wise, moving to a New York charter is a better move for us. Our view is that one regulator is pretty much the same as any other regulator.”
He said the charter change will be transparent to customers. All bank operations, loan terms, interest rates, deposit insurance, etc., remain the same under either a federal or state charter.
“Our customers will see no change,” Martinek said. “It is truly transparent, even to most of our employees here at the bank. The only people who will see any change are those who have to read the regulations.”