Brookline Bancorp’s proposal to become the state’s first Internet-only bank has come under consideration by the state Board of Bank Incorporation.
One issue that regulators are scrutinizing is the bank’s security. Traditional banks can safeguard funds with security vaults and surveillance cameras. But regulators must determine if electronic encryption and firewalls are enough to deter cyberbandits.
Regulators are also faced with figuring out how to determine whether the bank is complying with the Community Reinvestment Act, which requires banks to make loans in low-income and minority areas in which they operate.
I think it’s potentially a pretty critical issue, said Thomas Callahan, executive director of the Massachusetts Affordable Housing Alliance. As the trend moves away from traditional bricks-and-mortar banks, it’s going to be a challenge to figure out where those CRA rules apply.
Under the CRA, banks receive ratings based on their lending in the areas where they have branches. That area is called the assessment area.
But where is that area if a bank is located in cyberspace and can be reached by customers from around the country?
The bank’s parent corporation, Brookline Bancorp, has proposed making Greater Boston its assessment area because its customer target area includes the 60 cities and towns within Interstate 495.
But the bank has indicated on its application that it hopes to draw customers from around New England, Callahan said.
Brookline Bancorp filed plans in August to use $25 million from its 1998 stock offering to create Lighthouse Bank, a wholly owned subsidiary based in Waltham.
Lighthouse would offer most of the services found in conventional banks, including savings and checking accounts, loans and credit cards. It wouldn’t have tellers or its own cash machines, although customers would get ATM cards.
Although many Massachusetts institutions offer online banking functions, Brookline is the first bank to seek a charter to create a separate Internet institution.
That, in and of itself, has caused it to get extra attention, said Joseph Leonard, deputy commissioner of the state Division of Banks.
If approved, the bank will be ready to go by the end of March, said Thomas Venables, Lighthouse’s chief executive.
Only five savings and loan charters have been granted to Internet banks by the U.S. Office of Thrift Supervision. The U.S. Office of the Comptroller of the Currency has issued three commercial charters to online banks.
Lighthouse’s plan does have shortcomings, Venables said.
If it sounds a little bit vague, it’s because we don’t have the data to know how it’s going to work out, Venables said.(AP)
