Hamstrung by state limits on the amount of municipal deposits a state-chartered thrift can accept, Bank of Greene County in Catskill plans to convert to a federal charter.
A New York law actually prohibits state thrifts from taking in municipal deposits at all, though some - including the $296 million-asset Bank of Greene County - have gotten around it by establishing limited-purpose commercial bank subsidiaries.
But the amount of municipal deposits that such subsidiaries can accept is limited, and the thrift's executives have concluded it would have more freedom to solicit funds from local governments if the Office of Thrift Supervision regulated it.
"If I flip to the federal charter, we'll be able to accommodate all the municipalities in our market with room to spare," said J. Bruce Whittaker, Bank of Green County's president and chief executive officer.
New York is the only state that forbids its thrifts from taking in government deposits. Since 1999 about 10 thrifts there have established commercial banks solely for the purpose of soliciting municipal deposits.
But when Bank of Greene County set up Greene County Commercial Bank in May 2004, it could invest only $2.7 million into the subsidiary, because state regulations limit the capital contributions to such subsidiaries to 1% of the thrift's assets. Furthermore, since the Federal Deposit Insurance Corp. requires such subsidiaries to maintain an 8% ratio of capital to assets, the subsidiary's total assets cannot exceed $33 million.
As of March 31, Greene County Commercial had $23.5 million of assets, so it is on pace to top $33 million by this time next year.
"The bottom line is that there's more than $33 million of business out there, and we would find ourselves in a position of having to turn away municipal deposits if we did not switch to a federal charter," Mr. Whittaker said.
Roberta Kotkin, the general counsel and chief operating officer of the New York Bankers Association, said she was not aware of any other New York state-chartered thrift that was converting to a federal charter specifically to increase its access to municipal deposits. She said she does not expect Bank of Greene County's conversion to trigger a flood of similar ones.
In a filing last week with the Securities and Exchange Commission, Bank of Greene County said it filed its conversion application with the OTS on May 26 and expects to have it completed by the end of the third quarter.
In an e-mail released last week by her press office, New York State Banking Superintendent Diana L. Taylor said, "It is always a disappointment to face the prospect of losing one of our state-chartered banks. However, choosing a charter is a business decision, and a bank can and should assess the regulatory environment in terms of its business plan. This holds true for all depository institutions, whether they are commercial banks, savings banks, or credit unions."
