The Middletown Press (Middletown, CT)
From ‘go-go’ to ‘go slow’
CT bank collapses rare since Bank of New England
In 1991, it was the real-estate lending practices by “go-go bankers from Hartford” as one Connecticut lawmaker phrased it at the time — and their counterparts in Boston — that triggered the collapse of the Bank of New England, sending a shock through the region despite depositors being able to access their accounts.
As the U.S. banking industry absorbs a fresh case of the jitters with the failures of Silicon Valley Bank and Signature Bank, New England bank executives appear to have internalized the hard lessons of 1991 and the refresher course they got during the Great Recession of 2009 — with isolated bank failures along the way, but fewer than in other regions with similar-sized populations.
On Thursday, U.S. Sen. Richard Blumenthal and Sen. Chris Murphy joined a group of lawmakers in introducing legislation to restore provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Since 2018, the law has spared all but the largest U.S. banks from enhanced capital requirements as a safeguard against economic shocks, with larger numbers of banks having been under Dodd-Frank scrutiny previously. U.S. Rep. Rosa DeLauro and Rep. John Larson are co-sponsoring the bill in the House of Representatives.
“The collapse of Silicon Valley Bank underscores the urgent need to stop big banks’ efforts to self-govern and deregulate,” Blumenthal stated in a press release announcing the legislation. “Common sense measures — like strengthened stress tests and heightened capital and liquidity requirements — will safeguard vulnerable American families who have the most to lose from another financial meltdown.”
Dating back to 2001, however, just four New England banks have been placed under Federal Deposit Insurance Corp. control, including Stamford-based Connecticut Bank of Commerce in 2002 and The Community’s Bank in Bridgeport in 2013. In 2005, the Connecticut Department of Banking forced the closure of Circle Trust in Darien, which focused on services to wealthy individuals, nonprofit organizations and other banks, rather than Main Street customers.
Only two other banks in the region have required FDIC intervention since 2000, when memories of Bank of New England’s shadow were dissipating near the peak of an economic growth cycle. In Lowell, Massachusetts, Butler Bank succumbed in 2010 during the housing crisis of the Great Recession, with People’s United Bank acquiring Butler Bank. Buffalo, New York-based M&T Bank acquired People’s United last year.
Six New York-based institutions have required FDIC intervention over the past two decades, including Signature Bank which has a Greenwich branch; and USA Bank which was based just across the Greenwich line in Port Chester, New York. Over that span, the FDIC placed eight banks in New Jersey into receivership, and 10 in both Pennsylvania and Maryland. Florida has seen roughly 75 banks go into FDIC receivership since 2000, and Georgia more than 90.
Overly zealous real-estate lending prompted both the Bank of New England failure and the Great Recession of 2009, but with construction markets having been relatively subdued compared to Florida and other hot real estate markets nationally, Connecticut banks may have been more insulated against getting over extended on real estate loans.
At the time, the Bank of New England was the second largest federal seizure in U.S. history. Having merged in 1985 with the parent company of the Connecticut Bank & Trust Co., the Bank of New England was based in Boston as one of the 20 largest institutions in the nation. But the banking crisis extended beyond Bank of New England in Connecticut, with three dozen institutions failing between 1991 and 1996 as listed by the Connecticut Department of Banking.
As the case with the SVB and Signature Bank collapses, the federal government pledged to cover all deposits at the Bank of New England to deter panic withdrawals by customers, though plenty of people still yanked money out of caution.
The federal government issued no such promise in the collapse of the Connecticut Bank of Commerce, with roughly $72 million held in accounts that exceeded the $100,000 cap in place at the time for depositors to get their money back from FDIC. That left open the possibility those customers would have been left high and dry, but New Jerseybased Hudson United Bank pounced with a takeover offer, then was acquired itself by TD Bank.
In addition to branches in Stamford, Branford and Woodbridge that totaled about $123 million in deposits on the eve of its collapse, Connecticut Bank of Commerce had two New York City branches with nearly $200 million in deposits.
No buyer surfaced in 2013 for The Community’s Bank, forcing the FDIC to cover accounts. People’s United Bank was assigned the recipient of direct deposits from federal agencies like Social Security and the Veterans Administration on behalf of The Community’s Bank customers. Today, a GE Credit Union branch is located at The Community Bank’s onetime office near the Beardsley Zoo.
At the time, FDIC projected a $7.8 million hit to its insurance funds as a result of payouts to The Community’s Bank account holders, who had less than $26 million in deposits in the aggregate lodged with the bank.
In a 2013 op-ed to the Connecticut Post, The Community’s Bank founder Peter Hurst Jr. opined the failure should not have happened at all, stating it was driven by a Connecticut Banking Department order to reduce its commercial real estate lending and increase its underlying capital base. Hurst today is CEO of the Greater New England Minority Supplier Development Council based in New Haven.
“Shrinking TCB’s balance sheet created a death spiral,” Hurst wrote at the time. “The Consent Order led the bank to reduce by $20 million its base of ... interest bearing deposits, fed funds, investments and loans.”
That cost the company $800,000 in annual net interest income, which was too much to overcome according to Hurst.
Hurst added 500 banks had been approached without success on any appetite to acquire TCB, suggesting that was a direct result of TCB’s focus on what he called “the Other Connecticut” — customers in lower income neighborhoods of Bridgeport, New Haven and Hartford. But People’s United and Bank of America had branches in close proximity to the TCB branch that listed larger deposit bases, as the case with a Chase branch up Boston Avenue in the same Bridgeport neighborhood.