Why Are There So Many New Banks in Chittenden County? 

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• Photos: Ken Picard
• Green Mountain Credit Union branch under construction

A rash of new businesses setting up shop in a neighborhood is generally one sign of a healthy economy, especially when those new businesses are banks.

A couple of Seven Days readers wrote in recently to ask about all the new banks popping up in Chittenden County, including three within a half-mile stretch of Shelburne Road in South Burlington.

Are Vermonters suddenly flush with funds? Did the state recently change its banking regulations to let more financial institutions vie for our hard-earned dough? And where are all the free toasters that banks used to give away to attract new depositors?

If you've noticed a Burlington-area banking boom, it's not your imagination. Michael Pieciak, commissioner of the Vermont Department of Financial Regulation, confirmed that in the last couple of years Vermont has seen an uptick in what he called "branching activity," or new bank branches, sprouting in the Green Mountain State.

According to the commissioner of DFR, which regulates, among other financial institutions, Vermont's six state-chartered banks and 13 state-chartered credit unions, his department knows of 13 new bank branches — seven in Chittenden County alone. They include the three that just opened or will open soon on Route 7: Mascoma Bank, Green Mountain Credit Union and SeaComm Federal Credit Union.

However, none of these financial institutions is a new bank, Pieciak pointed out. Mascoma Bank, which is headquartered in Lebanon, N.H., was founded in 1899 and already had 13 other branches in Vermont. Green Mountain Credit Union was founded in 1959 to serve employees and family members of Green Mountain Power. Its new South Burlington branch, which is scheduled to open in March, is simply relocating from a less visible location.

SeaComm, whose aquatically themed design led some passersby to assume it was going to be an aquarium — sorry, no Shamu for you — was founded in 1963 by 10 employees of the Chevrolet aluminum foundry in Massena, N.Y. For a time, the credit union was headquartered in a United Auto Workers union hall. Why the nautical theme? As a SeaComm spokesperson explained, Massena is located on the St. Lawrence River, which connects to the St. Lawrence Seaway and the Atlantic Ocean.

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• SeaComm Federal Credit Union

What's driving these banks' newfound interest in Chittenden County? The explanation doesn't require a master's degree in economics: Banks go where the money is.

"Chittenden County and the Burlington area are viewed as a growth center in terms of people, workforce and economic activity," Pieciak said. "That's a good thing for the Burlington area [but] not such a good thing for other parts of the state or region, where bank branches are closing because they're having trouble keeping deposits to a degree that keeps them profitable."

Specifically, rural communities are struggling to retain banks, he said, including Chester and Richford, which lost their TD Bank branches in 2018 and 2019, respectively. In southern Vermont, Poultney lost a Citizens Bank branch last year, likely due to the demise of nearby Green Mountain College at the end of its 2019 academic year.

For Vermonters who spend most of their waking hours within arms' reach of a laptop or smartphone and do their banking online, the loss of a single branch may seem inconsequential. But as Pieciak pointed out, when a small town loses its only bank, it can have a ripple effect throughout the local economy.

Particularly hard hit are customers who don't bank online, such as many seniors and low-income families without computers, smartphones or home internet connections. The loss of local branches means they have to drive longer distances to cash and deposit checks. This, in turn, affects other local establishments.

"When people come downtown to make their deposits, they stop at the local hardware store to make their purchases, and they stop at the local grocery store to buy groceries," Pieciak said. Once those people have to drive, say, another 20 miles to the nearest bank, they run errands and make purchases elsewhere.

For small- and medium-size businesses, the loss of a bank also can affect their ability to secure business loans, car loans and consolidation loans, as those decisions aren't necessarily made locally or regionally anymore, Pieciak added.

In the past, a local banker knew whether a community member was a safe risk and likely to pay back a loan. They would know the person's trustworthiness and connection to the community and perhaps take a greater risk than would a regional or national bank. But as those services flow to ever-larger institutions, Pieciak said, such decisions become less personal and more "bureaucratic."

Despite the glum news for small towns, however, Vermont has seen an overall increase in the number of banks. Though many have set up shop in Chittenden County, Pieciak said that new ones have also opened in Bennington, Brattleboro and Berlin. And, because Vermont's lending institutions tend to be more fiscally conservative than those elsewhere, Pieciak added, the state experienced no bank closures after the 2008 market crash, nor did any Vermont banks accept federal bailout money.

So whatever happened to the new toasters and other merch that banks used to give away for opening new checking accounts? According to Personal Finance: An Encyclopedia of Modern Money Management, that practice dated back to 1933 and a Federal Reserve Board rule called Regulation Q, aka the "Toaster Rule," which prohibited banks from paying interest on checking account deposits. In order to entice customers to open new accounts, banks offered gifts instead, typically toasters. Regulation Q was repealed in 2010 with passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, thus ending a decades-long relationship between bread and toast.