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Community banks to get portion of state deposits

Treasurer hopes effort will boost small business loans

By Todd Wallack
Globe Staff / May 5, 2011

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Massachusetts State Treasurer Steven Grossman is making good on his campaign pledge to shift a portion of the state’s deposits to community banks in an effort to boost local lending.

Grossman will make the first $50 million in deposits to 10 community banks today, including Pentucket Bank in Haverhill and Leader Bank in Arlington, to allow them to increase lending to small businesses in their communities.

“It’s important because my singular belief is small businesses are the backbone of the economy,’’ Grossman said. “And small business borrowing is going to be one of the vehicles to help small businesses grow their companies.’’

Grossman said the state would move the deposits from a larger pool of state funds typically held by major banks and large institutions.

Pentucket chief executive Scott D. Cote, whom Grossman credited with suggesting the idea for the Small Business Banking Partnership program, said it makes sense for the state to recirculate tax money back into Massachusetts communities.

“The state is bringing money back to the state,’’ Cote said. “That’s a real plus.’’

The move comes at a time when many community banks have already stepped up their small business lending, but not enough to offset steep reductions by credit card companies and national lenders, according to a recent study by the Massachusetts Bankers Association, a trade group that represents area banks.

In addition to Pentucket and Leader Bank, eight other banks have been approved for the program so far: Bank of Cape Cod, North Middlesex Savings Bank, Belmont Savings Bank, Mercantile Bank and Trust Co., Chicopee Savings Bank, Century Bank, South Shore Savings Bank, and Mechanics Cooperative Bank.

And two dozen more are in the process of signing up for the program.

Grossman, who plans to promote the program at an event at Pentucket this morning, said he eventually expects to move more than $200 million in deposits to local banks under the program. Each bank will receive up to $5 million for at least two years.

In return, banks that participate must pay the state an interest rate at least as high as what it currently earns on overnight deposits or another commonly used index. Banks must agree to file regular reports with the state on how they used the money, including details on where they loan the money.

Cote, however, said the Treasurer’s office agreed to make the forms as simple as possible. “If it comes with a lot of bureaucracy and extensive monitoring, it’s going to be difficult to get the money out,’’ he said.

Still, the cash represents only a fraction of the roughly $3 billion the Treasurer’s office manages for the state.

And many banks say they are already awash in deposits and don’t need additional cash to increase lending.

Instead, they need the economy to perk up to spur more qualified borrowers to apply for loans.

“We’re lending to as many qualified borrowers that come to us,’’ said Peter Roveto, a spokesman for Brookline Bank. “It’s not an issue of needing capital from the Commonwealth.’’

But East Boston Savings Bank chief executive Richard J. Gavegnano said he’s hopeful that publicity from the initiative will help spur more small businesses to apply for loans from banks that participate.

“We feel that it’s a very positive development to help stimulate small business activity,’’ said Gavegnano, whose bank has applied for the program.

“Plus, it’s good business to bring the money back to the state.’’

Todd Wallack can be reached at twallack@globe.com.