Testimony: NYC Banking Commission
Samuel SteinHilary WilsonOksana Mironova
Thank you to the New York City Banking Commission for holding a Banking Designation hearing this year. Our names are Samuel Stein, Hilary Wilson, and Oksana Mironova and we are senior policy analysts at the Community Service Society of New York (CSS), a leading nonprofit that promotes economic opportunity for all New Yorkers. CSS uses research, advocacy, and direct services to champion a more equitable city and state. We work to address urgent issues facing low-income New Yorkers, including the city’s chronic unaffordability crisis.
Overleveraging as Business Practice
One of our core areas of focus is protecting the city’s rent stabilized housing stock. There are one million rent stabilized apartments in New York City, and they provide a relative measure of affordability, compared to market rate apartments. Rent stabilized apartments remain the largest source of housing for low-income and working-class tenants. Rent stabilized tenants have lower median incomes than their market-rate counterparts, and they are also more racially diverse, include more immigrants, more people with disabilities, and more seniors.
Unfortunately, the affordability of the city’s rent stabilized stock has been under attack for the past 30 years, with lenders like Signature Bank (now Flagstar Bank) playing a central role in enabling landlords’ irresponsibly speculative behavior. Rental building values have risen in two waves since the mid-1990s. The first wave occurred between 1995 and 2007, when the average annual rental building sales price in New York City increased by almost 400 percent in every borough except Staten Island. Between 2010 and 2018, median sales prices for rental buildings rose again, more than doubling in many neighborhoods.
The astronomical rise of property values created the conditions for landlords to generate massive profits, often at the expense of their tenants’ health and safety: by increasing the size of the mortgages carried by their buildings. Landlords would first increase their building’s net operating income (NOI) by hiking up rents using loopholes within the state’s rent stabilization law or by withdrawing services to spend less money on operations.
With an increased NOI, landlords would go back to their lender—like Signature—and refinance their building’s mortgage for a higher amount. As the Association for Neighborhood and Housing Development’s Equitable Reinvestment Committee has shown, some multifamily lenders’ core business practices relied on “making multifamily loans to bad acting landlords.” For example, “year after year, building after building, Signature consistently made multifamily loans 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 Unheard Third survey has shown over and over again, there is no direct relationship between rising rents and improved conditions for tenants. Instead of putting money into the building 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.
Discriminatory Lending and Increasing Economic Hardships
The rapacious activities of institutions like Signature raise larger questions about how and in whose interests the City banks. Research shows that the large commercial banks with which the city does business are not serving all New Yorkers fairly, as is required by the Banking Commission’s rules. A recent report by the New Economy Project found that the four banks that have typically held the City’s largest deposits are “responsible for egregious racial disparities in mortgage lending, as well as small business lending and branch distribution.” Notably, Wells Fargo – a bank that was recently disciplined by the Banking Commission, yet remains a designated bank of the City – has only one bank branch outside of Manhattan. Underscoring the racial nature of inequality in bank access, the ten city council districts with the fewest bank branches per capita were made up of at least 75% people of color, and in eight of those districts, at least 90% of residents were people of color.
The absence of bank branches can make it more difficult to access crucial banking services. Just this year, the city’s Department of Consumer and Worker Protections found that over 300,000 New Yorkers are unbanked and effectively locked out of the benefits of traditional banking services, including accessing credit with affordable interest rates and receiving direct deposits from employers or tax refunds. Beyond proximity to conventional banks, minimum deposits requirements and fees associated with maintaining a bank account can prove too onerous for many households. In our own research, conducted through our annual Unheard Third survey, we found a recent increase in the proportion of New Yorkers with little to no savings, including among those of moderate-income. We also found that low-income New Yorkers are more likely than high-income New Yorkers to rely on informal and often more costly forms of financing to cover an emergency expense, including borrowing from family and friends, selling their belongings, and paying off a credit card over time rather than at the next statement. As DCWP has also found, lacking savings and access to affordable banking services is associated with and compounds other hardships and vulnerabilities, including housing and food insecurity. In short, having access to affordable banking services could be lifechanging for hundreds of thousands of New Yorkers, their families, and their communities, allowing them to attain financial security and build generational wealth.
Reject Irresponsible Banks, Support Public Banking
Over the past 35 years, landlords have been rewarded handsomely for treating their buildings as commodities, while tenants have continued to struggle for recognition that these buildings are not just investment vehicles but homes. Given Flagstar Bank’s central role in decimating the city’s rent stabilized housing stock, we call on the New York City’s Banking Commission to reject their 2024 Banking Designation application.
We also call on the members of the Commission to support the establishment of a local public bank and to endorse the New York Public Bank Act. As we’ve shown, many of the City’s existing designated banks are failing the people of New York. And yet, this is only the second opportunity the public has had to make their voices heard in the designation process. A public bank would bring greater transparency and democratic accountability to how public funds are used and would put city deposits to work in the public interest – investing in affordable housing and expanding affordable banking services for all New Yorkers.
If you have any questions or want to discuss further, please reach out to us at hwilson@cssny.org, omironova@cssny.org and sstein@cssny.org.