The Massachusetts Legislature has become the battleground for a skirmish among New England's big regional banks.
The fight is over a provision in the state's "opt in" legislation to national interstate banking that would increase the maximum deposit market share per bank to 30%.
Currently, Massachusetts law allows any institution to hold a maximum of 25% of the state's deposit market share. Providence, R.I.-based Citizens Financial Group is opposed to upping the deposit cap, claiming it would hurt competition and small-business lending.
"This is an issue that we think needs to be seen in the light of small businesses and community banks, which are facing the possibility of an oligopoly created by two banks with 60% market share," said Citizens spokesman James Dorsey, referring to Bank of Boston Corp. and Fleet Financial Group, Massachusetts' top two banks.
But Bank of Boston Corp. would like the provision to pass.
Assuming pending acquisitions of BayBanks and Boston Bancorp go through, Bank of Boston would hold 26.38% of the $100 billion in Massachusetts deposits. Those deals are scheduled to close by the end of the third quarter.
"There are about 600 separate financial institutions in the commonwealth (of Massachusetts)," said Bank of Boston spokeswoman Karen Schwartzman. "A change in the deposit cap would not adversely affect competition in Massachusetts."
She also said Bank of Boston and Fleet Financial would only hold 40% of the state's deposits, not 60% as Citizens' claimed.
"A significant percentage of our deposits come from out of Massachusetts," she said. "We have $3.27 billion on deposit that are from people or companies based outside the state, like escrow funds from BancBoston Mortgage Corp., international private bank deposits, and deposits from wholesale lending operations."
Fleet, with 16% deposit market share in Massachusetts, is quietly supporting Bank of Boston's position. Spokesman James Mahoney pointed out that the Riegle-Neal interstate banking law passed by Congress in 1994 suggested that states have a 30% deposit cap per institution. "We support amending the state law to make it conform," he said.
Some bankers have noted the irony in Citizens' position since it, together with Fleet, holds some 70% of the deposits in Rhode Island.
But Mr. Dorsey said "that dog don't hunt. Rhode Island is a different culture, a credit union culture. The credit unions failed in 1991, and Citizens was the first and only bank to step up and take over those deposits from credit unions. That's bogus."
Observers said it is likely that the opt-in bill, together with the 30% deposit cap provision, will pass the Massachusetts Legislature and be signed into law this summer. However, if it fails, Bank of Boston has other ways to protect itself: it has asked for a waiver from the state banking department, and it can always choose to divest some deposits.
