Seven state-chartered Massachusetts banks have jumped ship from the regulatory authority of the FDIC since 2007, with the majority changing to the Federal Reserve.

Four Massachusetts-based co-operatives are keeping their state charters but have changed their federal regulator to the Fed, while three additional banks have switched to national charters and regulation by the Office of the Comptroller of the Currency or the Office of Thrift Supervision.

Asked why the $131 million Medway Co-Operative Bank became one of the most recent Massachusetts Fed members, President and Chief Executive Officer John S. Hamilton joked that a Banker & Tradesman article published a year ago about the five other banks that recently switched regulators made him do it.

Banker & Tradesman reported in April 2007 that Bank of Easton, Marblehead Savings Bank, Northampton Co-Operative Bank, Mercantile Bank and Trust Co.,and Investors Bank & Trust had also switched their regulators from the FDIC to the Federal Reserve.

But in fact, Medway Co-Operative applied for Fed membership in summer 2006 and was accepted a year later.

The Federal Reserve has been “actively reaching out to community banks to Â… become members of the Federal Reserve,” Hamilton said. He advises his colleagues in the banking world that “you’re doing yourself a disservice if you don’t talk with [the Fed].”

He said he prefers the Fed’s approach to regulatory exams, which he indicated is more respectful of his bank’s risk-management process.
“It’s much more of a level playing field between bank and regulator” with the Fed as a regulator, he said. Federal Reserve regulators, while thorough, “are less documentation-oriented and much more action-based,” he added.

In contrast, the FDIC, which also insures banks – and continues to insure all those who have switched regulators in recent years – approaches regulation like an insurer, Hamilton said, complete with checklists, matrices and black-and-white questions posed the same way to all banks regardless of size.

He also likes the level of personal attention his bank gets as a Fed member. For example, he said he enjoyed a recent lunch meeting he had with Federal Reserve Bank of Boston President and CEO Eric Rosengren and a small group of fellow Fed member CEOs to talk about business and economic trends.

Last year, a Federal Reserve spokesman told Banker & Tradesman the agency wants community banks to become members, because “member banks help enhance our perspective on the industry as a whole.”

A Closer Look

Getting a firsthand look at the banks helps the Fed fulfill another of its primary roles, which is to set monetary policy, spokesman Thomas L. Lavelle said at the time. He declined comment for this article.
Massachusetts Bankers Association Senior Vice President for Government Affairs David Floreen said regulatory agencies naturally want to add new supervised-bank clients, because more institutions regulated means more influence on bank and public policy.

Serena Owens, associate director of the FDIC’s Division of Supervision, said that the FDIC, which regulates approximately 60 percent of U.S. banks and 141 of approximately 200 Massachusetts banks, has seen a net gain in bank charters nationwide over the past two years. The FDIC now holds the dual role of insurer and regulator of 141 Massachusetts banks, compared to 151 last year.

The FDIC does not have a financial stake in how many banks it supervises, Owens noted, since its exam fees are covered by the insurance premiums banks pay. The agency does not re-ceive appropriations from Congress.

John McGeorge, president and CEO of $684 million-asset The Needham Bank, said switching charters was a business decision.

For example, the bank – which a recently merged with Dedham Co-Operative Bank, creating a larger co-operative – is talking about creating a holding company, McGeorge said. Since the Federal Reserve regulates bank holding companies, he said, it seemed to make sense to have the same regulator for both institutions.

“We have been thinking about this for awhile,” he said. “It just seemed to make sense operationally.” The Needham Bank became a Fed member in March.

Chelsea-Provident President and CEO Joseph M. Vinard said he felt Fed membership was more appropriate for a “small, non-complex financial institution” such as his own. Chelsea-Provident is a one-branch, $45 million institution.

“The rumors were that the Fed has a more comparable [exam] process to the [Massachusetts] Division of Banks,” said Vinard, whose bank finalized its Fed membership last month. “They understand the way a small bank operates.”

In addition to the four who have switched to Fed member status, Providence, R.I.-based Citizens Bank decided last year it preferred a national charter via regulation from the Office of the Comptroller of the Currency.

He said the fact that Citizens has offices in multiple states drove the decision.

Springfield-based Bank of Western Massachusetts and Worcester-based Flagship Bank and Trust Co. were also regulated by the FDIC until January, when they switched to supervision from the Office of Thrift Supervision after being acquired by People’s United Bank of Connecticut.

A few Bay State banks regulated by the FDIC last year have since merged into others and two new banks have formed in the past year, also changing the number of banks regulated by the agency.