By Stephen W. Rice
With apologies to the great Billy Joel, the “New York State of Mind” I refer to in the title of this update is not his memorable ballad, but rather the unique legislative and regulatory environment we faced this year. Unique? Indeed. This year, the term “chaotic” also applies.
The New York state Legislature is both bicameral and politically divided. Republicans control the Senate, currently holding 31 of the 63 seats and governing in a coalition with one elected Democrat from Brooklyn and several other “Independent Democrats” who have broken away from their “regular” party. (A special election this November will fill a vacancy in the 52nd S.D. in the Southern Tier. Republicans hold an enrollment advantage, but the race looks to be competitive.) Meanwhile, in the Assembly, Democrats control 102 of the 150 seats, with the vast majority of their members representing the downstate New York City region.
So, while divided government has been norm in the best of times, this year brought unprecedented challenges. We witnessed dramatic changes in the leadership of both chambers, as the Democratic Assembly speaker and Republican Senate majority leader stepped down from their leadership positions (although not from the Legislature). Each faces separate federal corruption charges. The deputy Senate majority leader also resigned following his conviction on a different legal matter. And, we also saw a new chair of the Senate Banks Committee take the helm, and our longtime financial services superintendent resigned to join the private sector.
All this change had a significant impact on the normal legislative routine of the Legislature and on organizations such as ours, which represent our members in the arena. As always, the first three months of the session were dominated by state budget negotiations. With the Legislature scheduled to adjourn June 17, the window for legislative activity was complicated and compressed.
The Independent Bankers Association of New York State actively advocated for several new initiatives to enhance community banking, and the communities and customers our members serve. We also played what has become an annual game of intense defense – opposing a number of proposals that would enhance and expand the fields of membership and powers of tax-exempt credit unions, threatening to make what is already an unequal playing field even more so. Senate Banks Chair Diane Savino sponsored and introduced several new IBANYS’ initiatives. Two passed the Senate late in the session, but failed to receive support in the Assembly for companion legislation.
S.5296 would amend Section 2 of the state banking law to change the interval and asset threshold for examinations by the NYS Department of Financial Services. Our proposal would make mandatory the NYS DFS superintendent’s current option to extend the exam cycle from 12 to 18 months for community banks which are well capitalized and determined to be well managed with a composite condition of outstanding or good with no pending enforcement proceeding. The bill would also raise the threshold from $250 million to $1 billion in assets. Community banks face challenges from increased regulatory and technology demands, especially in the aftermath of the Dodd-Frank Act. These increased burdens and costs have had an impact on the number of community banks. (From 1992 to 2011, the total shrunk from 299 to 169 institutions, and the trend has not dissipated.) Extending the exam cycle and raising the asset threshold would provide some measure of relief.
S.5297, another IBANYS initiative, would amend the state banking law by adding a new Section 46 that would exempt community banks with assets of less than $1 billion (and which have received a “satisfactory” or “outstanding” CRA rating from their primary federal regulator) from having to endure a state CRA exam from the NYS DFS. Under current law, the New York state conducts CRA evaluations/exams on a biennial basis.
With the multitude of regulatory and compliance burdens under Dodd-Frank and in the face of the evolving technology demands, S.5624 would amend the state banking law by adding a new article 2-D to create community bank service corporations. The bill would permit community banks to invest in and utilize service corporations to achieve economies of scale. Community banks have significant regulatory burdens, whether they involve BSA, anti-money laundering, cybersecurity, technology or CRA requirements. Too often, banking laws and regulations are based on a “one size fits all” approach. Obviously, regulatory and compliance costs are much more easily absorbed and managed by large banks. This legislation would allow community banks to work collectively to provide services, using another bank, third-party vendor or under a joint undertaking.
On the defensive side, IBANYS closely monitored a host of bills involving credit union expansion, mortgage foreclosure, cyber security, fair lending among others.
IBANYS strongly opposed legislation (S.3616 Funke/A.774 Rodriguez) that would permit tax-exempt credit unions to receive state deposits by establishing a Credit Union Deposits Program, modeled after the successful Community Bank Deposits Program proposed by IBANYS and enacted several years ago. Such new powers would represent a “nose under the tent” precedent toward authorizing them to enter the municipal deposits business as well. IBANYS helped defeat this legislation for the second straight year, initiating a successful full-scale legislative contact outreach by member banks.
On the subject of the municipal deposits, we also helped stop another bill (S.4785 Robach/A.7017 Robinson) that would have permitted tax-exempt allow credit unions (and federal savings institutions) to accept and secure municipal deposits. It was also the second consecutive year we managed to stop this legislation, again after organizing a highly successful grassroots effort by member banks.
In New York, community banks face a challenging legislative and regulatory environment. Regardless of how many changes or obstacles we encounter along the way, IBANYS works hard to represent the interests of community banks and, by extension, of their local customers and communities.■
Steve Rice coordinates government relations and communications for the Independent Bankers Association of New York State. He has worked in the New York banking industry and New York state government for more than three decades.