New York City Banking Commission
Testimony by Will Spisak on behalf of New Economy Project
May 9th, 2024
Good morning members of the Banking Commission. Thank you for the opportunity to testify today. My name is Will Spisak and I am a Senior Program Associate at New Economy Project, a citywide economic justice organization. For nearly three decades, we’ve worked with community groups to build an economy that works for all based on principles of cooperation, neighborhood equity, racial justice, and ecological sustainability. New Economy works with community groups and low income New Yorkers to combat persistent redlining, predatory lending, and other inequities in our financial system and economy that perpetuate poverty, inequality, and segregation. We also work to democratize finance, land, housing, jobs, renewable energy, and other sectors of our economy – through public banking, community development financial institutions (CDFIs), community land trusts, worker cooperatives, and other community-controlled economic development strategies.
New Economy Project coordinates the Public Bank NYC coalition, made up of over 40 community and labor groups and community development financial institutions fighting to win a municipal public bank for New York City. Through public banking, the city can divest billions of dollars in public deposits from big banks that harm our communities, and leverage those deposits toward investments in historically redlined Black and brown neighborhoods.
New Economy Project and the Public Bank NYC Coalition call on the Banking Commission to reject the banks that have applied for designated status today, due to their egregious track record of redlining Black and brown neighborhoods and engaging in discriminatory lending practices. Furthermore, we call on members of the Banking Commission to actively support the establishment of a public bank in NYC.
New York City Needs Public Banking
As my testimony will make clear, the problems with KeyBank and Flagstar are not exceptions to the rule, but rather they exemplify the structural inequity and systemic racism embedded in our banking system. New Economy Project has regularly published maps showing striking disparities in the distribution of bank branches, mortgage loans, and other financial services throughout the city. One in three New Yorkers – and more than half of Bronx residents – are among the so-called “unbanked” or “underbanked.” Households without a bank account are concentrated in neighborhoods that have high poverty and unemployment rates; that are majority Black and/or Latino; and that have the least access to brick-and mortar bank branches.
New York law requires New York City and other local governments to place public deposits with commercial banks, effectively handing Wall Street a lucrative monopoly on our public deposits. This monopoly implicates our public dollars in an array of nefarious practices. In fact, many of the banks entrusted with holding city funds are notorious for engaging in harmful activities, from predatory lending and redlining to fossil fuel finance. Since 2000, the city’s primary depository banks have racked up more than $200 billion in fines and penalties for a host of unlawful and discriminatory activities.1
A public bank is what it sounds like – a bank created by a local government, accountable to the people, and chartered to serve the public interest. Public banks hold public deposits and reinvest in low-income communities and historically redlined Black and brown neighborhoods. They give local governments a powerful tool to expand fair lending and banking access, while helping to level the playing field for small credit unions and other responsible lenders that build community wealth.
A recent report by James Parrott, former chief economist for the City of New York and Policy Director for the Center for NYC Affairs at The New School, found that a public bank would have tremendous benefits on the city’s economy. In just its first five years, a NYC public bank would generate nearly $6 billion in new loans to historically redlined Black, brown, and low-income neighborhoods, creating over 70,000 good paying jobs in the process. This infusion of capital into communities could include $1 billion for climate infrastructure like solar panels and heat pumps; over $2 billion for affordable housing, adding nearly 18,000 deeply and permanently affordable units to the city’s housing stock; and $2 billion for small businesses and worker cooperatives, supporting a strong community-led local economy.2
In addition to generating equitable economic growth, a public bank would strengthen the local banking sector. Public banks partner with local banks, CDFIs, and credit unions to promote responsible lending and other financial services. They provide community-based lenders with key support – such as partnership loans, secondary capital, and credit enhancements – that helps them expand and diversify their lending. This support in turn allows credit unions and other responsible lenders to expand services to historically-redlined neighborhoods. In this way, public banks expand access to safe and affordable banking products and services that build community wealth. In North Dakota, the public bank’s partnership model is largely credited with supporting the state’s uniquely successful community banking sector. In fact, North Dakota has the highest number of community banks and credit unions per capita in the United States.3
Like many of the banks we entrust with our public deposits, KeyBank and Flagstar have systematically redlined and otherwise exploited low-income, Black, brown, and immigrant communities.
KeyBank
KeyBank has a long history of discriminating against Black and brown borrowers. The National Community Reinvestment Coalition recently released a damning report exposing KeyBank for engaging in modern-day redlining. The report found that among the 50 largest mortgage lenders in the country, KeyBank had the lowest percentage of mortgage originations to Black borrowers. The report charged that KeyBank systematically avoided Black neighborhoods and lent to low-income white applicants at a higher rate than high-income Black applicants. Despite making promises to improve in 2017, the bank failed to increase loans to Low and Moderate Income (LMI) families, reducing the number of loans to Black and LMI families between 2018 and 2021.4
During the height of the pandemic, when communities faced an unprecedented health and economic crisis, KeyBank discriminated against communities of color while extracting wealth from low-income and working class depositors. During 2020 and 2021, KeyBank collected over $300 million in predatory fees including overdraft and ATM charges.5 The bank’s distribution of PPP loans to small businesses mirrored its poor record of serving Black and brown communities. The bank lent just 17 cents in neighborhoods of color for every dollar lent in high-concentration white neighborhoods.6
More recent data suggests that nothing has changed at KeyBank. According to our analysis of 2022 HMDA data, the last year for which data is available, KeyBank’s denial rate of Black loan applicants in New York was 47%, twice the rate of white applicants. Moreover, KeyBank originated just 85 loans to Black borrowers compared to 1,436 to White borrowers, and provided refinance loans to just 76 Black borrowers compared to 1,924 White borrowers.7 The bank also collected nearly $110 million in predatory fees from depositors last year, which disproportionately hurts Black households and low-income families.8
Flagstar
Flagstar has engaged in illegal and fraudulent activity that should disqualify it from consideration as a designated bank for the City. In 2012, the United States Attorney for the Southern District of New York filed a civil suit against Flagstar. The bank ultimately admitted to falsely certifying mortgage loans for FHA government insurance even though the loans did not qualify. Flagstar thus knowingly and fraudulently passed on the risk of their mortgage loans to the public.9
Just two years later, in 2014, the Consumer Financial Protection Bureau (CFPB) fined Flagstar for violating mortgage servicing rules. Because of the bank’s negligence, approximately 2,000 homeowners unnecessarily foreclosed on their homes.10 And as recently as October 2022, there were reports that the Department of Justice is considering another lawsuit against Flagstar for discriminatory lending practices. Upon a review of the bank’s lending patterns, the DOJ discovered that the bank’s Black borrowers are paying more for their home loans than the bank’s white borrowers.
Moreover, Flagstar recently acquired Signature Bank and is a subsidiary of New York Community Bank (NYCB), both infamous for making loans that enabled notoriously predatory landlords to deregulate thousands of NYC’s rent-stabilized apartments, severely exacerbating the city’s housing crisis.
The Banking Commission should reject the applications of KeyBank and Flagstar and support the establishment of a public bank, which would allow NYC to invest public deposits in historically redlined Black and brown communities, instead of continuing to hand over public deposits to Wall Street banks, like KeyBank and Flagstar, that put profit over people and perpetuate poverty, segregation, and inequality. Thank you.
1 https://bettermarkets.org/analysis/rap-sheet-report-2023-wall-streets-ongoing-crime-spree/
2 Parrott, James; Mattingly, Michele “The Economic Impact of a NYC Public Bank” June 2023
3 Institute for Local Self-Reliance, Public Banks: Bank of North Dakota
4 NCRC, REDLINED: KeyBank Failed Black America Despite Its Commitments to Improve, November 2022
5 FFIEC Call Report, KeyBank 12/31/2021 and 12/31/2020 – includes all overdraft, maintenance, and ATM fees.
6 PPP loan data obtained through the Small Business Administration website (PPP FOIA Loan data last updated October 3, 2023). PPP loans to small businesses are defined as loans up to $150,000. Loans were filtered by “Originating Lender”. The total loan amount per neighborhood was calculated by aggregating all the individual loans (“Current Approval Amounts”) by zip code. Neighborhoods of color are defined as zip codes in which fewer than 30% of residents identified as non-Hispanic white, according to the Census Bureau’s American Community Survey 2020 data (accessed through CDX Technologies Zip Code Batch Reporting – State and County Data purchased on November 11, 2023). Non-residential zip codes were excluded from the analysis.
7 HMDA 2022, data obtained from the CFPB-FFIEC HMDA Data Browser
8 FFIEC Call Report, KeyBank 12/31/2023 – includes all overdraft, maintenance, and ATM fees.
9 https://www.justice.gov/archive/usao/nys/pressreleases/February12/
flagstarbanksettlement.html
10 https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-flagstar-bank-for-violating-new-mortgage-servicing-rules/