Small Banks in Mass. Fight Branching Bill's Deposit Cap Increase

The pending merger of BayBanks and Bank of Boston Corp. is making some Massachusetts community bankers rethink their willingness to raise the state's deposit cap.

The Community Bank League of New England, representing 90 Bay State community banks, is objecting to a provision in Massachusetts' interstate branching bill that would raise the state deposit cap to 30% from 25%.

The league, which had earlier supported the entire bill, claims that increasing the cap could potentially allow as much as 90% of the market to be dominated by Bank of Boston and the state's other two major players, Fleet Financial Group and Providence-based Citizens Financial Group.

"We believe in and support interstate banking. What we don't support is a concentration of deposits to create an oligopoly to control the markets," said Donald S. Glass, president of the league. "It's not in the best interests of community banks."

"That's an unfounded fear on their part," said Jeffrey T. Graham, director of government affairs and community investment for Bank of Boston. "The mutuals control close to 30% of the market, and as long as they retain mutual form of ownership, there's no way that could happen. It's an appeal to an emotional argument that I don't think has any basis."

And Mr. Graham noted that federal antitrust laws are actually better controls on market dominance than deposit caps.

The dispute has led to a rare disagreement between the league and the Massachusetts Bankers Association. The two associations, which share many of the same members, generally cooperate on most issues.

Representatives of both trade groups met last week, but were unable to reach a consensus. Massachusetts Bankers officials say they're still trying to work with the league to restore industry unity on the bill.

"We're just trying to find out if there's a significant portion of members who feel differently now than before," said Richard Driscoll, Massachusetts Bankers president. "We have not been able to determine that there is a very high level of concern among the community bankers in Massachusetts, but we continue to work with them to see if there are ways to resolve whatever differences there might be."

Community bankers say their concern surfaced after BayBanks and Bank of Boston announced their merger, expected to raise Bank of Boston's Massachusetts deposit share to 26%. Fleet currently has 20% of the deposit share, while Citizens controls 11%.

League officials say they're not trying to block the Bank of Boston- BayBanks merger, but are concerned about its potential. They argue that the state's deposit cap was raised to 25% from 15% only three years ago, and it's too soon to raise it again.

"We don't want to stop that deal or cause any problems, but we think this is an unhealthy change in the current rule that causes too much concentration of deposits into a limited number of banks," said Thomas R. Faulkner, chairman of the league and president and chief executive of Haverhill Cooperative Bank. "If we're going to change the cap every time someone gets near it, why have the cap?"

Community bankers say they're afraid that if Bank of Boston, Fleet, and Citizens became too large, they could just undercut smaller institutions in loans and deposits, and drive them out of the market, reducing competition.

And, they claim, if those banks become "too big to fail," smaller banks could be forced to help if trouble strikes.

"Our big concern is that, all of a sudden that creates a 'too big to fail' scenario, which isn't good for us or the banking industry," said Paul C. Green, president and chief executive of Massachusetts Cooperative Bank. "The rest of us end up picking up the tab when something is too big to fail."

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