A Public Bank Would Strengthen Housing and Financial Security – And Also Protect NYC Taxpayers
As senior policy analysts at the Community Service Society of New York, we’ve identified at least three key reasons why New York City government should move forward on establishing public banking. A democratically controlled financial institution, using public funds and chartered to serve the public interest, would help:
Counteract irresponsible real estate loans that jeopardize the housing security of low-income tenants;
Increase the financial security of thousands of New Yorkers who now have no checking or savings accounts; and
In an era of heightened intergovernmental friction, protect the City’s own bank deposits from the kind of Federal interference that has already taken place, costing City taxpayers’ money.
Let’s consider each of those goals in turn.
Offsetting loan practices that fuel tenant displacement. One of our core areas of focus is protecting the city’s rent-stabilized housing stock. According to our analysis of the 2023 New York City Housing Vacancy Survey (HVS), 37 percent of low-income households (earning under 50 percent of Area Median Income, or AMI) live in rent-regulated apartments. This totals some 434,300 households – nearly three times as many as those living in public housing and subsidized rentals combined.
Prior to the Covid-19 pandemic, multifamily properties sharply increased in value in two waves, between 1995 and 2007, and once again from 2010 to 2018. Fueling that rise in the rent-stabilized stock were landlords who exploited loopholes to push out long-term tenants, drive up rents, and increase their buildings’ net operating income.
With an increased income, landlords would go back to their lenders and refinance their buildings’ mortgages for a higher amount. As the Association for Neighborhood and Housing Development’s Equitable Reinvestment Committee has shown, some lenders’ core business practices relied on making loans to bad-acting landlords that were “speculative and underwritten to practices of displacement, harassment, or building neglect.”
Landlords do not have any obligation to use this debt-generated profit to improve their existing buildings and make living conditions better for their tenants. As CSS’s annual surveys of New Yorkers have shown over and over again, there is no direct relationship between rising rents and improved conditions for tenants. Instead of putting money into the buildings in which conditions continue to decline, landlords used the money provided to them by their lenders to buy more rental buildings, or as cash payouts to themselves or their investors. Providing loans to preserve affordable housing, on the other hand, would be a central function of a public bank.
Increasing financial security for low-income New Yorkers. In our most recent survey of a statistically representative sample of New York City residents, we found that 13 percent of respondents had no savings or checking account at a bank or credit union. Unbanked respondents were more likely to be low-income and unemployed. Additionally, over a third (37 percent) of unbanked New Yorkers had no money saved for a rainy day, more than four times the rate for those with a bank account.
Unsurprisingly, the most common reason respondents gave for not having a bank account was unaffordable fees and minimum deposit amounts. For those who lack income, savings, or employment, even a $25 minimum deposit and $3 maintenance fee (the maximum amounts for basic banking accounts at New York State-regulated banks) can be onerous. Moreover, in the context of continued attacks on the Federal regulatory infrastructure, New Yorkers will likely face increased fees for overdrafts and late payments, constituting additional barriers for those already struggling to access banking services.
Fortunately, credit unions and other mission-driven financial institutions are filling the gaps left by commercial banks like those that currently hold all of City government’s deposits. For instance, in the Bronx, which has the highest rate of unbanked households and has been plagued by waves of bank branch closures over the last two decades, the Lower East Side People’s Federal Credit Union recently partnered with the Bronx Financial Access Coalition to open a new credit union branch.
However, these institutions operate under tremendous constraints, particularly in terms of the capital they can raise given their relatively low-income client base. This is where public banking comes in. By partnering with a public bank through participation loans, mission-driven financial institutions could scale up their services and reach to finally meet the banking needs of low-income New Yorkers across the city.
Safeguarding City finances from Federal intrusions. In an era of extreme financial uncertainty, it is important for New York City to protect its financial assets from political interference. Earlier this year, for example, the Federal government seized $80 million from the City’s account at Citibank, without authorization. Citibank processed the reversal without questioning it, over-drafting the City’s account and forcing New Yorkers to absorb the loss.
All of these are reasons why the City must move toward establishing a public bank. It would allow New York City to invest billions of dollars in affordable housing, expand financial services, and address other critical needs, particularly in low-income, Black, brown, and immigrant communities that Wall Street banks routinely fail or exploit. It would also be a bulwark against unwanted and expensive Federal intrusions in the City’s financial management.
Oksana Mironova and Hilary Wilson are senior policy analysts at the Community Service Society of New York (CSS), a nonprofit that uses research, advocacy, and direct services to champion a more equitable city and state. Matters is adapted from their May 5th testimony to the New York City Banking Commission. It consists of the Mayor, City Comptroller, and Commissioner of the City Department of Finance. It approves the banks holding deposits of City funds and also administers a program to open bank branches in traditionally underserved communities.
Photo by: whowhatwhy.org
