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Regulators Tighten Restrictions on Bank of Boston

September 11, 1991

WASHINGTON (AP) _ Regulators on Wednesday placed Bank of Boston Corp., which has been hurt by New England’s commercial real estate slump, under tight operating restrictions.

The holding company is forbidden to pay dividends to stockholders without regulatory approval. Within 60 days, Bank of Boston must submit a plan to keep its capital reserves and the capital reserves of its subsidiary banks in compliance with minimum federal standards.

Capital acts as a cushion, absorbing losses. When it is gone, the institution is declared insolvent and the government’s deposit insurance fund must pay for additional losses.

The requirements are part of a ″memorandum of understanding″ signed by Bank of Boston Chairman Ira Stepanian and Thomas E. Cimeno Jr., senior vice presiddent of the Federal Reserve Bank of Boston.

With more than $30 billion in assets, Bank of Boston was once New England’s largest banking company. It is now second to Fleet-Norstar Financial Group Inc. of Providence, R.I., which in April agreed to merge with the failed Bank of New England Corp.

In the memorandum, the holding company agreed to support subsidiary banks that get into trouble and to provide regulators with 20-days written notice before paying off debts owed to creditors of the holding company before they are due.

Regulators also will get prior approval of any transaction greater than $1 million between the holding company and its banks.

The memorandum requires the company’s board of directors to formally evaluate the competence of senior managers at least once a year. It also restricts stock option and bonus plans for the managers.

Bank of Boston, like many other regional banks, suffered heavy losses as the New England economy sank into recession, causing real estate loans to sour.

But based on the recent financial reports, Bank of Boston appeared to be making progress in resolving its troubles. The bank lost $49 million loss in the April-June quarter, but the losses had been shrinking since last summer.

″We are still making progress,″ said Constance Hubbell, a bank spokeswoman.

She said the memorandum formalizes a 1989 arrangement with the Federal Reserve.

″This does not represent any new development at the bank,″ she said.

Analysts did not see the memorandum as cause for alarm.

″I do not presume that the regulators are turning up the volume,″ said David Berry, an analyst with Keefe, Bruyette & Woods in New York. ″Bank of Boston has been living intitmately with regulators for a couple of years.″

″Obviously they’ve been wounded by what’s happening in the New England economy,″ he said. ″But in our view, Bank of Boston is an improving situation.″

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