Banks encouraged to convert to state charter

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Since taking control of the newly formed Department of Financial Services in October 2011, DFS Superintendent Benjamin Lawsky has encouraged New York banks to convert to a state charter instead of federal Office of the Comptroller of the Currency oversight.

Earlier this month, Fairport Savings Bank became one of six banks in the state, and the only one from the Rochester area, to make the switch.

“There were two big motivators for us,” said Leslie J. Zornow, Fairport Savings Bank executive vice-president. “The OCC has traditionally been a commercial bank regulator and we’re a savings bank and it’s not as good a fit to push a savings bank into a commercial bank model. The DFS has more experience regulating savings banks.

In addition, it’s a lot less expensive. There is a large cost savings involved and like all financial institutions we’re interested in saving what we can.”

Zornow said it took the bank about six months to make the switch, which must be approved by the OCC, the Federal Deposit Insurance Corp. and the DFS.

Fairport Savings Bank has five Rochester locations and total assets of approximately $220 million.

“We believe that New York State’s Department of Financial Services has a better understanding of community thrifts like Fairport Savings Bank and therefore is a better fit for us as a regulator,” Dana C. Gavenda, the bank’s president and chief executive officer said in a statement. “Converting to state charters makes good business sense. It allows banks to be supervised by regulators who have a great understanding of the banks’ local business dynamics.”

In announcing Fairport Savings Bank and three New York City-area banks were making the switch, Lawsky said: “Banks are finding state regulators to be accessible, flexible and responsive to their needs.

Lawsky appointed a nine-member State Charter Advisory Board in March to promote the state chartered banking system.

“As the state bank regulator, we have a unique understanding of the business dynamics here in New York. Our balanced approach to prudential supervision and enforcement promotes economic growth,” Lawsky said.

Board member Brian E. Hickey of Pittsford, executive vice-president of the M&T Bank Corp., said “The New York State Department of Financial Services has the unique ability to combine its regulatory responsibilities with the needs of New York consumers in an environment that allows banks to operate at a high level.”

In December 2011, Elmira Savings Bank became the first bank to convert to state banking charter under the DFS.

One reason there haven’t been more thrifts opting for DFS regulation is there aren’t many savings banks left in the area, Zornow said.

As New York Bankers Association President Michael A. Smith explained, the Dodd-Frank Act of 2010 allowed thrifts or savings banks to choose which regulatory agency they want to oversee them.

“It is a big deal to change,” he said. “By coming into the state charter system, regulation is in the state with officers around the state but it takes time. It’s one of the decisions a bank has to make. I think the catalyst for much of this decision was the merger of the Office of Thrift Supervision with the OCC last year.”

Banking analysts said fears that the OCC regulatory process would be difficult prompted banks to examine who they wanted their regulator to be. Zornow said the change in regulators would have no effect on the banking experience of customers.