Which Banks Should Get to Hold NYC’s Billions in Cash?

In 2021, New York City officials won praise when the boards of several of the City's five pension funds voted to divest $4 billion from firms invested in fossil fuels. "Today is a major victory for our planet, our children, and our pensioners," the City Comptroller's office declared in a statement. 

But what about the banks where the City stores some $100 billion in taxes and other revenues that flow through its coffers throughout the year? 

Bank of America, JP Morgan Chase and Citibank are among the major lenders to the fossil fuel industry, according to a 2022 report. Those three banks, along with Wells Fargo, have loaned more than a trillion dollars to fossil fuel firms since the Paris Accords were signed in 2015.  

And their questionable business practices aren't limited to just fossil fuels. "These [commercial] banks also have directly engaged in longstanding patterns of racial discrimination and predatory practices such as blatant racial profiling of customers of color and steering communities of color to high-cost loans, denying loan services to immigrants, as well as overcharging people of color with consumer fees and service charges," according to a May 2022 report by Demos and the New Economy Project.

Given that just a handful of these huge banks control half of the financial industry's assets, some observers argue that it's all but impossible for the City to park its money in ethically sound places. That’s why a coalition is now advocating for the creation of a public bank to hold City revenue deposits and to invest these dollars for the public good.

"Responsible banking practices are essential to the health of our city and our neighborhoods," said Barika Williams, executive director of the Association for Neighborhood Housing and Development, which is part of the group pushing for a public bank. "ANHD strongly maintains that it is a privilege—not a right—for a bank to hold City deposits," Williams added.

But unlike the City's pension funds, which divested after a study by independent consultants that assessed the risks and opportunities, aligning the City's banking practices with local policy preferences—what some call ethical or responsible banking—may be easier said than done.

Every two years, the New York City Banking Commission—made up of the mayor, the comptroller, and the Department of Finance commissioner—decides where City agencies can do their banking. A City Charter formula based on a bank's assets caps the amount of City funds that can be held by each bank.

There are currently 28 banks designated by the banking commission to hold City cash, though there are accounts in only 15. And there are lots of accounts, roughly 3,200, in part because each of the City's 1,600 schools has one or more accounts. But a relatively small number of accounts typically holds most of the City's cash, according to Ryan Lavis, the Finance Department's director of public information.

Roughly 260 of all the City's accounts held about 98 percent of the $1.3 billion on hand on February 28. On that day, the City had more than $515 million in Bank of America accounts and $495 million in Chase accounts, according to unaudited figures provided to Hell Gate by the City’s Department of Finance. Together, the two banks held more than 75 percent of the $1.3 billion the City had in its standard bank accounts that day. (Citi held a comparatively modest $3.1 million on February 28, but had more than $364 million on the last day of 2021.) These dollars don't just sit in the accounts waiting for the City to withdraw them as needed—the banks use them to make loans and other investments. 

Money is continually flowing in and out of these accounts as City agencies pay for schools, parks, and other municipal needs, so a single day's snapshot does not fully reflect how much money streams through them. From October to December of last year, the second quarter of the current fiscal year, the municipal treasury collected $27.5 billion in taxes, federal and state aid, and other revenues, and the City had an average daily cash balance of $6.5 billion, according to the most recent quarterly cash report from the comptroller's office. 

The banking commission relies on two fundamental requirements: The banks have to offer the City the same interest rates they give other customers, and they must certify that they won't discriminate in employment or lending. The commission also considers the financial soundness of individual banks and "their commitment to the citizens of New York City," according to the comptroller's annual comprehensive financial report for fiscal year 2022. 

The commission can also rescind its approval of a bank if it substantially reduces services in low-income or Black and brown communities. Just days after Mayor Eric Adams celebrated at a launch party for a new Wells Fargo credit card, the CITY reported that the bank rejected Black refinancing applicants at a much higher rate than other banks during the years 2018 through 2020. The mayor and Comptroller Brad Lander later said that the City would no longer make deposits at Wells Fargo.

Following Chase's recent announcement that it intends to shut overnight ATM services at an unspecified number of its banks, Lander warned the bank's executives that they were at risk of losing the City's business. "It is very concerning that this rule could unfairly target low-income communities and communities of color and reduce the availability of trusted financial resources in these communities," he wrote in a letter.

In February, the banking commission announced a couple of its own steps to increase bank accountability. When the commission meets on May 25 to decide which banks can hold City deposits for the next two years, it will now take public comments prior to the vote. The application requirements for banks seeking approval also have been revised "to reinforce the obligation for depository banks to provide detailed plans and specific steps to combat different forms of discrimination in their operations," according to a press release.  

While he applauds these steps, Andy Morrison, associate director of the New Economy Project, told Hell Gate, "It's important not to pretend this is going to change that much." That's because there are substantial practical and legal barriers to how the City can select where it banks. "The City generally has limited discretion to not designate a bank under the current framework," Morrison said.

The practical barrier has to do with bank liquidity. City agencies sometimes need to withdraw large sums from their accounts to pay for goods and services. When an agency needs its funds to pay bills, a bank must have enough cash on hand to meet the needed withdrawal.

The legal barriers may be even harder to surmount. State law defines the kind of banks the City can use, which excludes community-oriented institutions such as credit unions. What's more, due to a 2015 federal court ruling that overturned a City Council law requiring more bank oversight, there are limited criteria the City can use when deciding where to bank.

That 2015 ruling effectively blocks the City from considering environmental and many other public policy concerns when it comes to deciding where it wants to bank. That includes the lending practices of banks like Signature, where the City had nearly $64 million in accounts—the fourth most of any of the City's 15 banks—on February 28 when the bank collapsed.

The judge's ruling is also part of the reason many advocates and elected officials, including Lander, support the creation of a public bank. "We think the solution is a public bank to really be able to bank ethically," Morrison said.  

The New Economy Project has spearheaded support for a New York City public bank, modeled after the long-time public bank in North Dakota. The municipally run bank would invest City deposits in affordable housing, renewable energy, and other needs, especially in low-income communities. And the City would reap any profits from these investments. 

As with many local initiatives, the road to fruition runs through Albany. So far, that's been a dead end. Legislation sponsored by State Senator James Sanders, who is the chair of the Senate Banking Committee, has languished in Albany for more than four years. The bill was last introduced in May of 2022. 

There seems to be little desire among the state's leadership to buck powerful opponents of a public bank. The New York Bankers Association has argued that a public bank is a false promise, citing a Harvard University study finding "that higher government ownership of banks is associated with slower subsequent development of the financial system, lower economic growth, and, in particular, lower growth of productivity." In testimony to the New York City Council, the business-backed New York City Partnership called the creation of a public bank "a fiscally dangerous and unnecessary use of public resources." 

While a majority of City Council members support a resolution urging state support for a public bank, it's not clear where Mayor Adams stands. A recent op-ed in City Limits noted that during Adams's 2021 campaign, he supported the creation of a public bank. But two requests to the mayor's press office for comments on his current position went unanswered—suggesting that a public bank is not among "the stuff" the mayor wants to get done.  

Seeking to shed some light on where the City banks, Councilmember Keith Powers introduced legislation last June that would require the City to provide quarterly reports detailing average balances, earnings, and charges on all the City's accounts. Lavis, the Finance Department spokesperson, says that the agency "broadly supports the goal of increasing transparency on earnings and charges at agency deposit accounts," but with the reporting limited to just the major-dollar accounts.

The Council is meeting on Wednesday afternoon to discuss this legislation.

(Top photo credit: Thomas Hawk / Flickr)