The State Of Maine: Banking On Success

Think of Maine, and what do you think of? L.L. Bean, of course, a landmark business in Freeport, with catalogs and customers around the world. Poland Springs water has quenched the thirst of many bottled water drinkers. Perhaps you recall that Shawshank Redemption was based on a Maine prison. Moose might come to mind, or even fall leaf peeping. But Maine’s special banking and financial service licenses would come a distant second to its famous lobsters.

Here are some fast facts about the state of Maine:

• It is located in the Northeastern US, and borders Canada on three sides, with 3,500 miles of coastline.
• It has a population of approximately 1.28 million.
• The largest city is Portland and its state capital is Augusta, and it became the 23^rd state in the union on March 15, 1820.

Former governor Angus S King, Jr, an independent, signed into law the Universal Charter Bill on June 5, 1997, creating Public Law 398. As part of the legislation, limited purpose banks were enabled. The legislation includes provisions for:

• These banks to be organized as a limited liability company, a limited partnership, or limited liability partnership, in addition to the traditional corporation format.
• These banks to offer virtually the same services, with almost the same powers, as a full-service bank.
• These banks to be subject only to state and not federal regulatory oversight.
• These banks to pay low chartering and regulatory fees, and a franchise tax equal to one percent of Maine net income and no more than eight cents on every $1,000 dollars of Maine assets.

The Department of Professional & Financial Regulation’s Bureau of Financial Institutions regulates limited-purpose banks. The law provides for three types of limited-purpose banks:

1. Nondepository trust companies.

A nondepository trust company is defined as "financial institution…whose activities are generally limited to trust or fiduciary matters." It still maintains the general powers, duties and obligations of other financial institutions. Such institutions typically manage individual and pooled investment funds, including retirement accounts, estates, and other funds. It may not solicit, receive or accept deposits, nor may it lend money except as related to its fiduciary or trust business. Its name should include the word trust, and should not include the word bank or a similar designation. The required capital will be at least $100,000 dollars and may be higher, if deemed appropriate by the regulators.

2. Merchant banks.

A merchant bank is permitted to conduct lending and investing activities, as well as trust and fiduciary functions. As a merchant bank is involved in investing businesses that might not be bankable, it is given wider scope to lend and invest than would be traditional banks. Real estate investment and development is allowed. It is barred from depository activities, as is a nondepository trust company. Its name may include the word bank or a similar designation. It must have an initial capital of no less than $20,000,000, of which $10,000,000 must be common stock or equity interest, and the balance may be composed of qualifying subordinated debt. It may also issue treasurer’s or cashier’s checks against its own funds.

3. Uninsured banks.

Maine has emphasized financial modernization through its universal bank charter. As one of the state’s websites states, "Maine chartered banks compete in a global marketplace free of unnecessary regulation and with the powers to provide any financial service that may be demanded by the public." (see www.ventureintomaine.com)

Here are some factors to consider in studying what a Maine universal bank charter can offer to its owners and customers:

• Unique charter options.
• A US based platform for international financial services.
• Virtual bank charters are allowed.
• A responsive regulatory agency with broad powers to craft charter powers on a case-by-case basis.
• Reasonable fees and franchise taxes.
• No physical presence in Maine required.
• Interstate banking opportunities.
• No federal regulatory oversight.

Maine is not the only state to offer alternative bank and financial institution charters. For instance, Connecticut licenses uninsured banks, with a $5 million dollar capital requirement. These are used for wholesale or merchant banking. Such banks may not accept retail deposits, excluding non-accredited investors. There is currently one such bank operating in state. It also allows limited purpose trust companies, which are considered non-depository charters. There are five such companies operating in Connecticut.

Utah is one of five states that has the industrial loan charter, or ILC, which has been used by a number of successful financial service companies. For instance, American Express Centurion Bank is an ILC, as is UBS Bank USA.

Maine currently has eight licensed limited purpose institutions, including one merchant bank and seven trust companies, with one of the trust companies also holding an uninsured banking license.

About the author: Ralph M. Sherman, Esq., is an attorney and has been practicing law for over sixteen years. He is the founder of and president of Createabank, LLC, a Michigan-based consultancy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.