Connecticut Sets Rules to Avoid Clash with U.S. over Stock Conversions
Epstein, Jonathan D., American Banker
Regulators and bankers in Connecticut are hoping to avoid a battle with federal officials over stock conversions of state- chartered mutual savings banks after watching a similar row in Massachusetts.
In particular, officials are hoping that new regulations Connecticut has adopted will meet with the same federal approval as similar rules adopted last July by Massachusetts.
The new rules are necessary because both states have unique state chartered institutions that have their own set of governance regulations: mutual savings banks in Connecticut and Massachusetts and co-operative banks in Massachusetts.
In Massachusetts, the state-federal disparity was highlighted by Falmouth Co-operative Bank, which is awaiting final word from the Federal Deposit Insurance Corp. about whether it can proceed with its mutual-to stock conversion, despite lingering conflicts between state and federal regulations.
"It's been a little bit of a learning curve at both the state and the federal level," said Dan Forte, executive vice president of the Massachusetts Bankers Association. "Our concern all along has been that depositor voting has never really proven an efficient or a clean mechanism by which these deals can be approved."
Last month, after a Herculean advertising effort by Falmouth, 8.1% of the bank's depositors overwhelmingly approved the state- chartered cooperative bank's plans to convert to stock form. About 84% of the 399 depositors present at a special meeting in Falmouth voted in favor of the plan. And 93% of the affirmative votes were cast by noninsiders.
Thrift officials hope that will satisfy the FDIC, which implemented conversion regulations last year requiring approval by a majority of a mutual's depositors, whether by proxy vote or in person. The new rules conflicted with Massachusetts law because the state bars proxy voting and state regulators wouldn't let Falmouth violate the law.
The FDIC board must decide, and may do so as early Tuesday, whether the voting results sufficiently satisfy concerns about insider abuse to justify granting Falmouth a waiver of its regulations. Falmouth is the first cooperative to test the new FDIC rules, but there are 78 other cooperative banks in the state.
"We believe that the explicit standards for a waiver ... are met given the circumstances under which the bank obtained its depositor vote under state law," wrote Falmouth attorney Richard A. …