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MASS. MARKET: Should the state enter the banking business?
BOSTON The states banking landscape is already pretty crowded, with a few giant players slugging it out with roughly 200 community banks and dozens of credit unions. State and industry officials will meet Tuesday to begin discussing whether a big new player should enter this fray. This institution already has a massive revenue stream, and is not without political connections. Of course, it also has a few financial issues that could complicate things just a bit. Dont worry. The Commonwealth of Massachusetts probably wont be sticking its logo on ATMs or branch signs anytime soon. But theres a real possibility that the ad hoc commission that convenes Tuesday could pave the way for the creation of a state-owned bank one that would be only the second of its kind in the nation. The goal of a state-owned bank, from the Legislatures perspective, would be to ensure that loans are accessible to the businesses and individuals who need them. That access, in turn, would hopefully help accelerate the economic recovery. Thats the idea, at least. Senate President Therese Murray started pushing the concept of a commission to study a state-owned bank in early 2010. By August, lawmakers carved this new commission into state statute as part of a broader economic development bill. The law required that the panel of 20 members be created within three months, and report back in a year. The first deadline has long since been blown, making the second deadline much harder to reach. When the commission assembles for the first time, all eyes will be on North Dakota home to the countrys only state-owned bank. Its easy to see why Murray found North Dakotas success story appealing. The state has remained largely untouched by the ravages of the recent recession. Its lowest-in-the-nation jobless rate was an impeccable 3.6 percent in March, compared to a mediocre 8 percent here in Massachusetts. Bank of North Dakota isnt your typical neighborhood bank. You cant just open a checking account or buy a CD with BND. No toasters for joining. No lollipops or doggie treats when you walk in the door. But the bank does act as a key backstop for commercial lending, makes it easier for students to get loans they need for school, provides financial backing for home loans, and helps farmers sustain and grow their operations. More than one-third of this new commissions members are bank executives. Despite the skepticism in the banking community when Murray first floated the concept, these executives say theyre going into the process with an open mind. Most would agree with Joe OLeary, a senior vice president with Flagstar Bank. OLeary says theres no need to create a state-backed bank that would duplicate the main functions of the states numerous community banks. But some services performed by BND, he says, are worth considering. He also says it would be important to ensure that loan recipients are picked based on their creditworthiness, not their political pull. Bank of North Dakota generated a $62 million profit last year. But Reading Co-operative Bank CEO Julie Thurlow says shed caution other commission members against expecting a return on the investment overnight. It would be unrealistic, she says, to expect this bank to be any sort of solution for the state governments current budget woes. Dick Gavegnono, CEO of East Boston Savings Bank, wouldnt argue with Thurlow on that point. But Gavegnono also says a plan for a state-owned bank should be aimed at making that bank self-sustaining as quickly as possible, as long as it has skilled professionals at the helm to assess borrowers creditworthiness. You cant just hit a button and send millions out the door without expecting to recover that money and then some in a reasonable timeframe. Like most local bank CEOs, Century Bank CEO Barry Sloane doesnt see a reason to be alarmed about the current supply of loans in the area. Even as big national banks retrenched to lick their subprime-inflicted wounds, most Massachusetts community banks continued to grow their loan portfolios. Sloane says Century Bank, one of the largest community banks in the state, consistently expanded its lending levels each year throughout the recession. None of these thoughts will come as a surprise to Division of Banks Commissioner David Cotney, co-chairman of the new commission. Cotney says the panel will also evaluate the states existing quasi-public lending agencies such as MassDevelopment and MassHousing as well as programs that use money controlled by the Treasurers office and the state pension fund. Even if the commission decides a state-owned bank is a waste of time or resources, at least it will have tried to answer important questions about the role state government should play in helping inject some life into a sluggish, uncertain economy. After all, a 3.6-percent unemployment rate sure does look appealing right about now. Posted by: Delphi 2011-05-01 |
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