Banks Sue City to Halt Deposit Advisory Panel
A group of banks is challenging a New York City law that would create an advisory board to help decide which banks should handle the city's roughly $6 billion in deposits based on how well they serve low- and moderate-income communities in the city.
The New York Bankers Association claims in a lawsuit filed on Oct. 11 in the Southern District of New York that the law is unconstitutional because it is preempted by state and federal banking regulations (See Complaint). The law, Local Law 38 in 2012, was passed over Mayor Michael Bloomberg's veto, and Bloomberg has so far declined to enforce it.
Local Law 38 calls for a Community Investment Advisory Board, including the mayor and comptroller, which would look at criteria such as whether banks offer credit to small businesses and mortgage modifications to homeowners facing foreclosure. The information would be made publicly available, and could be used by the City Banking Commission to decide where to deposit its money, though the law does not mandate any such decisions.
The banking group claims that the law effectively makes the city a regulator, and seeks to impose its "subjective" criteria on banks.
The city, the suit says, has "no permissible role in examining or regulating banking activities," since banking regulation is exclusively the domain of state and federal government.
Even though it does not specify any particular sanctions, the suit claims, it allows the city to "threaten deposit banks with public criticism" and loss of the city's business. The NYBA is represented by senior chairman H. Rodgin Cohen and partners Robert Giuffra, Jr., Marc Trevino and Matthew Schwartz of Sullivan & Cromwell. The case is New York Bankers Association v. City of New York.