Many big cities in the United States responded to the fallout from the 2008 financial crisis by passing local laws which pressure banks to invest more in low-income neighborhoods. Between 2010 and 2013, cities such as New York, Seattle, Los Angeles, San Diego, San Jose, Boston, Minneapolis, Kansas City and Pittsburgh all enacted ordinances of this type. Their actions were, in many instances, motivated by concerns that federal and state regulatory bodies were not doing enough to seek compensation from the large banks—thought by many to be most responsible for the economic meltdown.
For example, New York’s law which was enacted in 2012, applied to 21 banks — including Bank of America, Citibank, JPMorgan Chase, and other large institutions — that are eligible to hold the city’s municipal deposits. The banks were required to provide extensive and detailed data to a new Community Reinvestment Advisory Board—data that goes well beyond what federal regulators collect under the Community Reinvestment Act (CRA). The information sought by New York related to the banks’ local small-business lending, their efforts to prevent foreclosures, their lending for affordable housing and their branches in low-income communities, among other categories. The ordinance also authorized New York’s Banking Commission to consider the banks’ responses to the information requests when deciding where to park the city’s sizable base of deposits. The idea was that this linkage of the information provided to the city’s banking decisions would give the affected banks an incentive to invest more in New York neighborhoods. Continue Reading