Connecticut is mulling whether to join a new compact that allows banks chartered in New York, New Jersey and Pennsylvania to expand across state lines and be regulated only by their home state.
Connecticut Banking Commissioner Howard Pitkin said his counterparts in New York and New Jersey called him more than three months ago to encourage Connecticut to join the compact. Pitkin said Connecticut law allows the state to join, but he wants more time to review the proposal with legal experts and the banking community.
“New York unfortunately has a (bank) branching law that is very restrictive,” Pitkin said. “I view the agreement between the three states as a constructive step in addressing the New York law.”
New York also petitioned Massachusetts to join, according to a spokeswoman with the New York State Department of Banking.
Under provisions of the agreement, banks in these three states that open branches or that expand into states participating in the compact will operate under their home state”™s laws and regulatory oversight. For example, a New York bank can now expand into New Jersey and be subject only to New York”™s banking laws.
Connecticut has also yet to join the Nationwide Mortgage Licensing System launched earlier this year, allowing states to share information on mortgage brokers.
In 1983, Connecticut became the first state in the nation to adopt a regional, reciprocal banking agreement, with Massachusetts which ratified the agreement the following year. After Northeast Bancorp and Citicorp challenged the agreement in court, the U.S. Supreme Court ruled in 1985 that such compacts are legal. In 1990, Connecticut passed a national reciprocity law.
New York has remained a sticky wicket, however. In 2006, Bridgeport-based People”™s United Financial Inc. converted to a federal charter in order to open new branches in New York and possibly other states. State-chartered banks are allowed to use acquisitions to expand into other states.
State charters are attractive for smaller banks in part due to lower fees than charged by the federal Office of Thrift Supervision and Office of the Comptroller of the Currency, according to FinPro Inc., a banking consultancy based in Liberty Corner, N.J.
State chartered-banks tend to enjoy a more accommodating relationship with relevant regulators and are allowed to have less-experienced directors, FinPro adds, allowing them to experiment with new products more readily than they could under federal supervision.
