New York City wants to make its money matter.
So it is looking to place city deposits with banks that work with small businesses, have branches in underserved neighborhoods, and lend to low-income and minority borrowers. That's a noble and important effort. But the city doesn't need its own legislation to make it possible.
A U.S. District Court judge ruled Aug. 10 that NYC's Responsible Banking Act was unconstitutional. The act, which dates to 2012, gave the city the power to require banks to give data regarding what they did for small businesses and low-income neighborhoods. Under the act, a city advisory committee gathered information on lending, foreclosures and more from the banks themselves.
The ruling overturned the law because it overlapped with federal and state legislation that already governs banks. There are federal laws that incentivize banks to build branches in underserved neighborhoods. Other laws require lenders to provide data on every loan they approve and deny, including race, ethnicity and Census tract information. Foreclosure and delinquency documents are public as well.
So, there's a constant stream of data that indicate whether a bank is socially responsible, takes care of its communities and lends fairly. Using that information, the city can achieve its goals by putting its own deposits in banks that do business in historically underserved neighborhoods from Mott Haven to Bushwick.
A city spokeswoman said there's important information that's not available without the city's own law, like affordable-housing investment, loan-modification data and whether foreclosed properties that the banks own are maintained properly. The city can start to develop good relationships and communication with bank leaders, and maybe it will get that information voluntarily.
NYC might appeal the district court's decision. Whatever the outcome, officials should and can move ahead now with an outreach effort to determine which banks have their heart in the Big Apple.