By David Brand
New York City is missing out on thousands of new affordable apartments and billions of dollars in local investments without a publicly owned bank to deposit its cash, according to an analysis by the city’s former chief economist and fellow researchers.
A $6.5 billion deposit in a city-owned bank over five years would quickly send most of that money to local credit unions and organizations focused on community development, according to the assessment by Dr. James Parrott and Michele Mattingly of the New School’s Center for New York City Affairs.
The researchers say the bank — a proposed alternative to the private institutions that now handle the city government’s cash — would provide financing for 17,000 new income-restricted housing units over five years, while making loans to small businesses, fueling more local jobs and saving the city millions on fees.
“That lending is going to take place in the local economy and support the banking needs of consumers and businesses,” said Parrott, who served as New York City’s chief economist from 1992 to 1994. “It’s going to have much more locally experienced economic effect rather than those deposits going to large banks that then operate on a global scale.”
Despite majority support in the state Senate, New York lawmakers failed to pass legislation last session that would allow cities to create their own public banks. But the concept is gaining traction in the Empire State and across the country. Earlier this month, Los Angeles, the nation’s second-largest city, took steps to establish a public bank with lawmakers arguing it would better serve residents of color and low-income Angelenos.
On the national level, U.S. Rep. Alexandria Ocasio-Cortez, a New York Democrat, introduced a bill to ease the creation of public banks in 2020.
New York City currently stashes its money in an array of private institutions approved by a municipal banking commission. Those assets included $60 million that the city had in Signature Bank at the time of its collapse, and over $1.1 billion in giants JPMorgan Chase and Bank of America at the end of 2021. Last year, the city stopped opening new accounts with Wells Fargo, another banking powerhouse, after a Bloomberg investigation revealed it denied mortgage loans to Black customers at double the rate of white applicants.
The report authors say the private banks that the city uses make decisions based on shareholder interests rather than municipal needs and lock out small businesses, mortgage applicants and low-income New Yorkers. The billions of dollars cited in the report as being available for housing loans and other projects is based on a complicated analysis tied to average daily cash reserves with other variables.
They cite an analysis by the National Community Reinvestment Coalition, which found a 40% decline in small business lending in New York City between 2008 and 2016, with the vast majority of loans under $1 million concentrated in the city’s wealthiest neighborhoods.
“Banks take in deposits from consumers in New York City and then don’t lend as much to small businesses in New York City as they could because they can make greater profits in other ways” Parrott said. “And that makes it harder for people to start businesses, and it makes it harder for small businesses to access credit.”
He and Mattingly said a public bank would probably not operate as a retail chain, where customers withdraw money from ATMs or tellers, but would instead loan money to local institutions and credit unions to disperse.
The concept has the backing of the city’s financial ombudsman. In April, City Comptroller Brad Lander told the City Council’s finance committee that the public bank would “serve the interest of working New Yorkers, especially in the communities of color that big banks have neglected for so long.”
“A public bank would create new opportunities to support existing community development financial institutions to dramatically expand their footprint and provide basic high-quality banking services to the 780,000 New York families who remain unbanked or underbanked,” he added.
But the city can’t act alone. It first requires state lawmakers to pass the New York Public Banking Act, which stalled last session. In the meantime, public bank advocates have urged the City Council to pass a measure that would create a structure for the bank insulated from political interests.
“We want to be ready as soon as that bill is passed to start acting on it,” said Will Spisak, senior program associate with the New Economy Project. “We’re facing an affordable housing crisis, we’re seeing the effects of the climate crisis in real time, we’re seeing small businesses shutter. Now would be the perfect time to turn to a public bank to address those issues affecting the city.”
The city’s Department of Finance did not respond to a request for comment. The state’s Department of Financial Services declined to comment on the public banking legislation.