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New Haven Saving's Judge and Jury
The ball of the New Haven Savings Bank conversion now rests with state Banking Commissioner Burke-and the FDIC
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Business New Haven
10/27/2003
By: BNH
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John P. Burke of Middlebury was appointed the state's Commissioner of Banking by Gov. John G. Rowland at the beginning of 1995. Along with the Federal Deposit Insurance Corp., Burke's office will play a key role in determining whether New Haven Savings Bank's plan to convert from mutual to public stock ownership will earn regulatory approval. The following was excerpted from two conversations that took place October 16-17.
Can you recall a proposed bank conversion that has generated this level of controversy previously?
During my tenure [as banking commissioner], and I have another 30 years in banking behind that, the only one that really rose to somewhat near that level was the People's Savings Bank of New Britain when they were about to be acquired by Webster Bank [in 1986]. There was a great deal of public outcry about that at the time. It never got to the level of the mayor [publicly opposing the conversion, as has happened in New Haven], though the mayor [of New Britain] did ask questions. It never got to the level that it has in New Haven.
What do you think accounts for the level of acrimony the New Haven Savings situation has engendered?
I haven't the slightest idea. The concern seems to be that [conversion opponents are] afraid that they're going to lose the bank. The bank has no plans to leave town. There is the possibility that five years from now, the bank may be purchased; that is obviously an option. I think the assumption on the part of the people complaining is that that is going to happen and therefore the bank will be owned by someone else [outside of New Haven]. I think that's the reason for the level of concern.
How much public comment has your office received?
The mayor had given out my e-mail address and we have received a significant number [of comments]. It's not like it's in the thousands, I would say, but we will review those.
On the September 25 you told a group of state legislators you would consider holding a public hearing on the conversion. What has happened since?
Nothing has happened since. At that time, we hadn't even received the bank's application. So we were operating in the dark. We had a preliminary meeting with the NHSB people and their attorneys, but we hadn't received anything official. What we are now doing is reviewing the application along with every piece of public comment that we have received. We did run a community-based hearing in the case of the People's Bank in New Britain. If we are to do this, when the examination group goes through the process of review, which will include public comment, I'll make that decision. If we hold one, we'll hold it in New Haven.
How narrow or broad is your discretion in granting the bank's application?
There are considerations, and some of them are subjective: whether the public benefits, and what the benefits are for the depositors. There are some [objective] criteria but there is some subjectivity involved.
How do your office's criteria for approval differ from those of the FDIC [Federal Deposit Insurance Corp.]?
They are pretty much the same. We work in conjunction with the FDIC. FDIC criteria is really to look at [its own] willingness to provide insurance to this institution. That is the criteria they use, but the details of that are pretty much the same as how we look at it. It has to be a safe and sound operation; it has to have an appropriate level of management that can handle the size of the operation; it has to [operate] to the benefit of the community; it must have a good lending record and lending plan. These are the same criteria we look at.
When the legislation to allow bank conversions was drafted, wasn't its purpose to help recapitalize financially troubled banks? Clearly, New Haven Savings cannot be described as financially troubled.
They are not financially troubled. The legislation was to allow some flexibility for mutual banks that wanted to grow and raise capital. Mutual banks have no way to raise capital other than by earnings alone; that is their only source of new capital. Legislation was created to provide them that. But, what was happening was that interstate banking was coming into vogue at that time, in the early and mid-1980s, so [Connecticut banks] were competing with the bigger guys and had to do more things to create new services, and they needed investment money to do that. A lot of banks didn't have any excess capital to do that kind of thing, so that was really the purpose of that legislation.
Your office has said the bank would have to hold a depositors' vote if the FDIC does not waive its requirement. When is that decision likely to come down, and has the FDIC ever rejected an application such as this?
I honestly don't know. They have never required [a depositors vote], so I don't know what agony they are going through in Washington, but it's out of Washington so I honestly don't know.
In determining whether a vote by the corporators may take the place of a depositors' vote, you have discretion to decide whether the corporators are sufficiently independent from the bank.
That is one of the factors we will review during the process of reviewing the application. We will go through, person by person, the independent directors and be sure that their independence is appropriate. There are requirements for that: their relationship with the bank must be at arms length; they cannot have a significant lending relationship; they can have a residential mortgage but not a big commercial loan; they can't be a major depositor but can have a checking account; they can't have a significant investment [deposits] in the bank. So it has to someone who is independent, doesn't have any business with the bank, can't be the bank's attorney or accountant. We review that criteria in evaluating the vote and be sure the majority of voting corporators who voted for it are independent.
Is it significant to you that 13 of the 31 corporators are present or former executives or directors of Yale-New Haven Hospital, or that seven have close ties to United Illuminating?
Things like that are not specifically mentioned in the criteria. I discussed this with the legislative representatives from the New Haven area. I said that we don't evaluate on that basis. The assumption [the lawmakers] were making is that because they were on the [hospital] board of that the hospital would direct their vote. That is a big jump and unfortunately, in a community the size of New Haven, there are going to be people who know each other, who have been working on each other's boards and in some cases these are people of means and stature in the community. If someone said, 'I'm going to get you off our board if you don't vote for this' - well, obviously that's a different thing. But there has been no mention or evidence of that. There is just the assumption [of conflict of interest] on the part of the people [who] are concerned about it.
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