Local banker to play key role in shaping financial policy
If you want guidance on the future of the world financial system, the man to see runs a regional bank in Weymouth.
South Shore Savings Bank's chairman, Arthur R. Connelly, also happens to be the incoming chair of the American Bankers Association, the Washington trade group for an industry that now faces its largest regulatory upheaval since the New Deal drastically reformed financial oversight in the 1930s.
In a different era the post could have been a career-capping sinecure for Connelly, 64, who plans to retire from his bank next year. Instead, he's been juggling his past and future roles, balancing charity golf events and breakfast at Bob's Muffin Shop in Columbian Square with flights around the country and conference calls with figures like Treasury Secretary Henry Paulson.
Elected last year to a one-year term that doesn't officially start until next month, Connelly already is helping shape stands on issues like money market fund insurance that the association takes on behalf of banking giants like Bank of America Corp. and Citigroup Inc. Meanwhile, his own bank has $618 million in deposits on its books - only the 47th largest in Massachusetts.
At some meetings, Connelly says, "I feel like the poor country cousin."
Mr. Connelly goes to Washington Call the situation George Bailey Goes to Washington, to mix up a pair of Jimmy Stewart movies. Long active in banking trade groups, Connelly may be the industry's most influential local leader now after a wave of consolidation and the shocks of recent months left better-known figures at the largest Massachusetts banks like Bank of America, Citizens Financial Group, and Sovereign Bancorp either retired or replaced.
In his new role, Connelly faces head-on consumer groups that have been frequent critics of the banking association over its support for steps they say contributed to today's problems. They point to rules that made it harder for consumers to discharge debts in bankruptcy, which they say leads to more people in foreclosure and in financial stress.
The American Bankers Association "is all about creating a better world for big banks and a worse world for consumers," said Ed Mierzwinski, program director of the US Public Interest Research Group, a consumer association in Washington. He said large banks prefer to be represented by figures like Connelly, who is on good terms with local politicians.
Connelly says while his association's members hold 95 percent of US bank deposits, its median average institution holds just $125 million, typical of a modest community bank. "I can't speak to what the ABA used to be, but I can reinforce what it is today."
But Connelly's political ties are undisputed. US Representative Stephen Lynch, Democrat of South Boston, credits Connelly with opening South Shore Savings branches and making loans to small businesses even as bigger banks were pulling back in recent years. "He's a guy who has a good moral compass in terms of taking the industry where it needs to go and getting back to basics," Lynch said.
The connections don't always help. Lynch was among those who twice voted against the rescue package that Congress ultimately passed Oct. 3, rejecting the bankers' position the bill was critical to keep loans flowing and to avert economic catastrophe. A similar vote came from Connelly's own congressman, Representative William Delahunt, even though Connelly personally called to talk up the bill's importance at Paulson's request.
Both representatives said the bill lacked enough benefits for taxpayers, but both added they weren't put off by Connelly's support for the rescue. "If I was a banker, I'd be saying the same thing," Lynch said.
The beginning Connelly grew up in Lynn and studied to be a Catholic priest before switching careers and joining the institution then known as South Weymouth Savings Bank as head teller in 1966. It had $27 million in assets and just one office at the time. Connelly rose to become chief executive in 1984, in time to watch other banks in the state collapse under the weight of bad real estate loans.
Connelly kept his bank his bank a residential lender, avoiding speculative investments like condominium financing. In 1997 he helped engineer a merger with Weymouth Savings and combined the institutions into what became South Shore Savings, whose 15 branches now stretch from Stoughton to Plymouth.
Like most bank leaders, Connelly has run many boards including those of the South Shore Chamber of Commerce and South Shore Hospital. Unlike the typical reserved bank executive, Connelly is "gregarious," according to John Boucher, now South Shore Savings' chief executive who recalls that in 2002 Connelly appeared at an employee gathering costumed with a blond wig, a skirt, and a strategically stuffed sweater. (Connelly said he was dressed as former Lieutenant Governor Kerry Healey for a politically themed event.)
Along the way in his career, Connelly got involved in industry organizations such as an education program for a group representing smaller banks known as America's Community Bankers. Its interests historically had clashed with those of the larger banks on issues such as what limits the government should place on the share of deposits a single institution might hold.
But things changed starting in 1999, Connelly says. He said both groups were consumed with questions that no longer divided them such as what capital levels regulators should require banks to hold to support their lending.
Connelly, who in late 2006 became first vice chair of the smaller trade group, helped to negotiate its merger with the American Bankers Association and wound up in line to chair the merged organization.
"Sometimes you look in the mirror and you meet the enemy and it's you," he said. "Our agendas were the same."
Today's troubles While it has tightened its lending standards lately amid the slow economy, Connelly says his bank continues to loan money and like other small banks has seen millions of dollars in new deposits in recent months from customers looking for a safe harbor for money withdrawn from uninsured accounts or banks that aren't part of the state's extra deposit-insurance system.
"We have no credit crunch in my company," Connelly said.
But as chair of the banking association, his concerns go beyond his Massachusetts bank. In Washington on Sept. 26, for a board meeting to discuss the association's priorities for the coming year, the focus shifted to how to respond to a Treasury Department guarantee for deposits in money market funds as investors withdrew billions of dollars from these vehicles. Bankers feared the guarantees would unfairly help mutual fund complexes compete and soon persuaded Treasury officials to limit the amount of federal backing.
Another success came when banks won a provision in the rescue that would allow them to write off on their taxes many of the losses they suffered as a result of their holdings in mortgage lenders Fannie Mae and Freddie Mac.
Connelly credits the banking association's staff of several hundred for their work and lobbying.
But changes keep coming: On Oct 13, for instance, Paulson summoned chief executives of nine of the largest banks to Washington and presented them with his plan to invest $250 billion to buy company shares as a way to prop up their capital.
Small banks as well as large ones are eligible for the cash.
Connelly says South Shore Savings doesn't need to apply but the option is a good one for others.
He worries the economy suffers from a problem of confidence and that new financial regulations passed in the heat of the current crisis could overwhelm smaller institutions.
So how long before the credit crunch eases? "I'm not going to crystal-ball it, but we've seen bad times before and I'm confident the system ultimately will hold us in good stead," he said. "The economy is a series of cycles and we're in a not-so-good one right now, but we'll get to a better day."
Ross Kerber can be reached at kerber@globe.com. 