Massachusetts will be the first state to base examination fees on a financial institution's health.

Under a bill signed Friday by Massachusetts Governor William F. Weld, state-chartered banks, thrifts, and credit unions with ratings of Camel 1 and 2 will pay the lowest examination fees.

Camel 3 institutions will fall into a higher fee bracket, while those rated Camel 4 and 5 will pay the most. The new fees will take effect Jan. 1.

"Healthier institutions will be rewarded for their superior performance, while weaker banks, which require more supervisory attention, will pay their share of the freight," said Massachusetts' commissioner of banks, Thomas J. Curry, in an interview Monday.

Currently, the 217 financial institutions chartered in the Bay State pay annual assessments based on assets. In addition, they are charged $220 for each day an examiner spends in the institution. This system will be scrapped under the new law.

Though the Massachusetts Banking Commission has not determined specific fees, the new system is expected to save the state's smallest institutions the most money. Massachusetts has 60 with less than $10 million in assets.

"Smaller institutions are generally paying proportionately more on their assets than larger banks," said Ellen Lamb, vice president of the Conference of State Bank Supervisors. "This system will make the fees much more fair."

The Office of the Comptroller of the Currency is working on a risk-based fee schedule for national banks. A proposal is expected during the fourth quarter.

Massachusetts' new fee system is part of a law that opened the state's border to interstate branching on Aug. 2.

The branching law includes a "wild-card" statute that gives Massachusetts regulators the authority to grant state-chartered banks the same powers afforded to national banks. In addition, the law increases the minimum exam cycle from one year to 18 months.

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