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22 n e w h a v e n B I Z | A p r i l 2 0 2 2 | n e w h a v e n b i z . c o m F O C U S : B a n k i n g & F i n a n c e By Liese Klein I f TNB USA Inc. bank opened tomorrow, there would be no branches, tellers or ATMs. Connecticut's newest bank, to be based in Norwalk, would exist only as a set of offices where some of the state's biggest chunks of money would be managed in search of stable returns for entities like money market funds, towns and universities. "It's a wholesale operation; it's for large investors, not for individuals," TNB CEO James McAndrews said of the bank. Although there would be no retail operations for TNB, Connecticut citizens could indirectly reap the benefits of the bank's activities. Money market funds and nonprofits like Yale University and community foundations could see stable revenue even in challenging times. Cities and towns could count on their cash to generate funds to bolster services — or even lower taxes. All of those big pools of money would be safer than in traditional banks because the money would be kept on the books of the Federal Reserve, the nation's central banking system. "e mission of the bank is to mediate the safety and earnings of reserves to institutional depositors," McAndrews said. "TNB would make sure their earnings were high, and very safe." But don't expect to be seeing those higher returns for your favorite nonprofit or town anytime soon – TNB has been in a holding pattern since it first launched in 2017. "Unfortunately, from our standpoint and from the standpoint of many potential customers of TNB, we are dormant at the current time," McAndrews said. TNB's "narrow bank" concept, which allows it to pass through the central bank's interest payments to its clients, has stirred interest in the highest ranks of banking regulation. On Feb. 7, the state Banking Department issued an 18-month extension on TNB's application, pending confirmation from the Federal Reserve Bank of New York that it would establish a master account for TNB, a crucial step in creating the venture. TNB and the New York Fed have been exchanging terse letters since 2017 on the status of the account, as the Fed hammers out new rules on the legality of the "narrow bank" concept. Recession-era change offers blueprint e rules change that brought TNB into being started with a shi in Federal Reserve policy just prior to the Great Recession of 2008, when Congress acted to allow Federal Reserve banks to pay interest on reserves. e idea originated in the 1990s and was signed into law as part of the Financial Services Regulatory Relief Act of 2006. Federal Reserve Board Gov. Laurence H. Meyer explained the advantages in 1999 testimony before a House committee. "Because required reserve balances do not currently earn interest, banks and other depository institutions employ costly procedures to reduce such balances to a minimum. e cost of designing and maintaining the systems that facilitate these reserve-avoidance techniques represent a significant waste of resources for the economy," Meyer said. "In addition, because some small banks do not have a sufficient volume of deposits to justify these costs, current reserve avoidance techniques tend to place smaller institutions at a competitive disadvantage." McAndrews, who worked as a researcher at the Federal Reserve banks of Philadelphia and New York for 28 years, saw an opportunity in the policy change, which was implemented in October 2008. He saw that banks were keeping the interest payments for themselves. "One of the things that was so troubling to a lot of people was the fact that the interest on reserves was not being paid to depositors," McAndrews said. "I realized that a private bank could be created that would serve the needs of these investors. … TNB was created to fulfill this role." With partners including Norwalk- based investment manager Gene Park, McAndrews formed TNB USA Inc. and obtained a temporary authorization from the state Department of Banking as an uninsured bank in August 2017. TNB's application drew some media attention in part due to the rarity of a new bank being formed in the state. e last "regular" bank chartered in Connecticut was Start Community Bank, which opened in 2010 and now operates as New Haven Bank. e last new bank of any kind was Voya Institutional Trust Co., a Wilton-based firm that launched in 2014. TNB's founders chose Connecticut in part because of the state's "very sophisticated" banking regulators who are experienced in dealing with complex entities and high finance due to the state's many hedge funds and other financial firms, McAndrews said. "In addition to an excellent department, the Connecticut banking law was very clear and had been in existence for decades," he added, referring to statutes that pertain to narrow banks. "at portion of the law was very appropriate for TNB's business model." Banks like TNB are referred to as "narrow" because their business models focus on a narrow slice of the market: Parking funds from institutional investors at Federal Reserve banks. Under TNB's model, a large institution would open an account and the bank would then park their money with the Fed, where it would earn interest. Minus a small percentage for James McAndrews TNB seeks to become state's newest bank in face of Fed delays An upstart bank looking to launch in Norwalk is waiting for regulatory approval from the Federal Reserve Bank of New York (shown above). Most recent new bank openings in CT Date Opened Institution Main Office Bank Status 9/3/14 Voya Institutional Trust Company Windsor In existence as chartered 12/20/10 Start Community Bank New Haven Name changed to New Haven Bank 8/26/2019 8/29/08 The Bank of Fairfield Fairfield Merged into Bankwell Bank 9/9/2013 4/30/08 Fieldpoint Private Bank & Trust Greenwich Converted to a Connecticut-chartered, Fed-member commercial bank 3/31/2017 3/6/08 Quinnipiac Bank & Trust Company Hamden Merged into Bankwell Bank 10/1/2014 12/20/06 The Bank of Greenwich Greenwich Name changed to The First Bank of Greenwich 6/22/2009 4/24/06 Darien Rowayton Bank Darien Name changed to Laurel Road Bank 1/12/2018, then to DR Bank 10/02/2019 4/1/05 RBS National Bank Bridgeport Merged into RBS Citizens,9/1/2007 3/12/04 The Connecticut Bank and Trust Company Hartford Merged into Berkshire Bank 4/20/2012 11/18/02 Connecticut River Community Bank Wethersfield Merged into Liberty Bank 12/3/2010 Source: CT Dept. of Banking PHOTO | WIKIMEDIA COMMONS/BEYOND MY KEN

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