On Tuesday, New York City Council passed a Responsible Banking Act, a measure that, like the federal Community Reinvestment Act (CRA), encourages banks to participate in more socially responsible activities. Mayor Bloomberg has already expressed his firm opposition.
In New York City, 31 banks are approved to hold city deposits – amounts totaling into the billions of dollars. Not surprisingly, J.P. Morgan Chase and Bank of America hold the most city capital, but CitiBank, Wells Fargo, Deutsche Bank, HSBC and Capital One are also approved depositories. According to the new measure passed by the Council in a landslide 44-4 vote, all lenders seeking approval by New York City will be overseen by a new advisory council, which will publish an annual report on their practices. Banks will be required to disclose how they meet the credit needs of New York City neighborhoods. They will provide information on, among other things, their activity in lending to affordable housing projects and how they handle foreclosures.
Mayor Bloomberg has vowed to veto – and potentially even sue – the City Council over this measure, but we think it is a great move. Our allies at Association for Neighborhood and Housing Development were instrumental in fighting for the passage of this bill and many housing advocates city wide are thrilled at its potential. By encouraging banks to act in the community’s interest when it comes to issues of affordable housing and foreclosure, this bill will help both tenants and community development groups in preserving and creating affordable housing. Rather than a punitive regulation (though we don’t happen to think regulation is a bad thing) this bill will encourage lending institutions and community groups to work together to achieve stronger neighborhoods and healthier communities, using city deposits as an incentive.
Executive Director of ANHD Benjamin Dulchin told Crain’s New York Business, “We think of this as a local-level CRA.” It has been our experience so far that the CRA review process is an excellent forum for concerned advocates and tenants to air their grievances about bank practices, and that a lowered CRA rating can be very effective in getting banks to the negotiating table. However, the federal program only reviews banks every four years. We hope that the implantation of a local, annual review will encourage better bank behavior through increased transparency and oversight.
Philadelphia and Cleveland already have responsible banking ordinances, and dozens of cities across the county including Seattle and Pittsburgh are considering it. Los Angeles’s City Council passed a similar bill in a 13-0 vote on the same day as City Council did here in New York. We don’t mean to sound New York centric, but we’re especially thrilled that this national movement towards local bank regulation is gaining traction in the city of Wall Street. Most recognize New York as the world’s financial capital; we see it as the capital of the world’s most tenacious and resilient tenants. It’s exciting to see our elected officials gently reminding their powerful neighbors – J.P. Morgan Chase, CitiBank, HSBC, and Deutsche Bank all have U.S. headquarters a stone’s throw from City Hall – that if they want to do business in New York, they’re expected to give New Yorkers something in return.