With examiners making up 70 percent of his staff, Commissioner Thomas J. Curry says he doesn’t have much fat to trim at the Division of Banks. Yet that’s exactly what he’s being asked to do by the state.
Curry is looking at nearly $1 million in cuts from this year’s budget, which will total about $10 million.
The cuts are ironic, say banking industry observers, considering the DOB’s budget is derived entirely from fees paid by the institutions it regulates.
It is true we are a fee-for-service, fully self-funding agency. Any money that we raise is required to be deposited in the general fund and we wait in line to get it with everybody else, said Curry.
The problem with the 2002 budget is the rose-colored glasses of the past decade have been cracked by the recession, resulting in slashed budgets at many state agencies.
Curry said the division is going to have to make some serious efforts to deal with the cut. It means we’re going to have to be very creative and take a hard look at our staffing and existing programs, he said. He’s not ruling out cutting some of the 120 examiners who are part of the 170-person staff in his division, but that will partly be determined through collective bargaining agreements and seniority.
I think our focus is going to be how do we maximize the personnel that we do have left and meet our core program goals, said Curry.
According to Sen. Andrea Nuciforo Jr., D-Pittsfield, co-chairman of the Joint Committee on Banks and Banking, Curry wasn’t asking for the moon to begin with.
He came looking for a very modest [budget] increase, said Nuciforo. The increase was roughly $700,000 just to maintain current levels of staffing and service. With the cuts, the DOB would fall $948,000 short of the money needed to maintain the department as it currently is constituted, said Curry.
The Legislature did not select the division out for special treatment. As you know, many accounts in the budget this year were either level funded or were down, so this is not a situation where the Legislature chose the division for unfavorable treatment or were unhappy with the work being done by the division. To the contrary … this was a situation where our needs at the division collided with the budget realities, he said.
This is not an inconsequential issue for us, said Curry of what amounts to a 9 percent cut from level funding.
Finding the bright side of the situation, if you can call it that, Curry said he has the advantage of having gone through these kinds of cuts before, during the New England banking crisis of the late 1980s to early 1990s. We managed to try to hold everything together and do our job. It’s our goal to do the same thing this way – test our creativity, said Curry.
Ironically, one of the chief architects of the current budget previously advocated for increased staff at the DOB. During the last economic crisis, when state budgets were decreasing and there was a need to keep a closer eye on the condition of banks, House Speaker Thomas Finneran, who at the time chaired the Banking Committee, was a proponent for the hiring of 60 new examiners for the division, according to former banking commissioner Andrew J. Calamare. Finneran’s office did not return calls by Banker & Tradesman’s press deadline.
[The new budget] is a major cut that will have a major impact on the operation of the division, Calamare said.
‘Unfortunate Parallel’
It’s important in times of fiscal crisis that agencies like the DOB are well funded, Calamare said. We hired all these examiners at the time because we knew that in times of economic volatility, we needed to have a workforce that could get in there and do the kinds of financial solvency things that they expect regulators to do … [All financial institutions] have investments in the stock market. We count on the regulators to ensure that the institutions are holding up. I would say that now’s not the time to be making serious cuts in an agency like that, he said.
Although Curry said it was premature to say how many people or what positions may be cut, he pointed out that the DOB has fixed costs that cannot be changed, such as rental payments for its South Station offices and salary and examination-related travel, which makes up 95 percent of the budget. So there aren’t too many places to look. We’ve always tried to be fiscally responsible as an agency and we’re certainly cutting administrative costs when we can, he said.
During the economic upheaval of the late 1980s and early 1990s, although examiners were added to the department’s staff, 50 percent of management staff was trimmed, said Curry. In the last eight years, those positions have been brought back, nearly to original numbers.
The unfortunate parallel between today and the late 1980s and New England banking crisis is the double whammy of having an increased workload because of economic conditions – recession – to be sideswiped again by budget pressures, particularly where this is a fee-for-service agency, he said.
But Curry has no plans to increase the fee schedule for banks, he said.
Calamare pointed out yet another quirk of the proposed cut to the DOB: the department, in essence, is a revenue-generating source for the state. Its industry-assessed fees total more than the agency uses in its budget during each fiscal year. It doesn’t appear to me that this budget reflects the true financial nature of the industry-funded division, said Calamare. In times of economic volatility in the past, the Legislature has recognized that this agency does have to have the manpower to do the job, he said, while suggesting that Gov. Jane Swift may propose relief for the agency in her supplemental budget.
There’s talk in the building of Jane Swift submitting a supplemental budget and I’m hopeful that revenue figures strengthen, that we don’t see any decrease in state revenues and we’re able to put a few bucks back into accounts that really need them – and I think this is one, said Nuciforo.
Tom [Curry] and the division have several friends in the Legislature, including me, and I’m hopeful that we’ll be able to do something in the sup [supplemental budget], Nuciforo said.
But a spokeswoman for Swift said any comment would be premature, as the governor had until midnight on Saturday, after Banker & Tradesman’s press deadline, to decide on issues for the supplemental budget.
And let’s keep this whole thing in perspective, said Nuciforo. Over the last several years, the division’s budget has ranged from a $9.3 million line item in FY 1999 to $10.6 million and $9.9 million for the current fiscal year, he said. So this is not a situation where you’re seeing a budget cut that is a drastic budget cut. Rather, we have seen a peak and now a small valley and I’m hopeful we can go back to some peaks in the division, he said.
Kevin F. Kiley, chief operating officer of the Massachusetts Bankers Association, said that the cuts are made even more difficult considering the recent spate of additional duties added to the division, including enforcement of predatory lending regulations.
I think clearly there’s going to potentially be some impact on the staffing levels which, in some ways, will impact the quality of service that is available to the industry, he said.
Other facets that may be affected by the cut include pending legislation that would increase the examination duties of the DOB, particularly one that would extend Community Reinvestment Act requirements to mortgage companies.
I think it would be very hard for the division to fulfill it’s mandate on examining mortgage companies with this kind of a cut and I think the commissioner would probably have to weigh in on that, said Calamare.
We’ve already gone halfway through the year. Every dollar is that much harder to make up since we only have a half year to do it, Curry said.
While Kiley said he doubts banks will see any difference in the quality of examinations, other responsibilities of the division may suffer.
These are difficult economic times from the standpoint of the Legislature and the administration. You’re balancing all these cuts at the same time. It clearly is going to have a very serious impact on their [Division of Banks] ability to perform the functions they already do, said Kiley.
Nuciforo said that according to a memo prepared by Curry, the projected cost associated with the CRA bill would be $375,000, based on the new administrative people needed, the number of mortgage lenders in the state and projected increases in those numbers.
