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City of New York Banks its Billions in Boston
September 25, 2013
NYC banks billions in Boston - our communities get little in return.
State Street Bank & Trust handles an average of $6 billion of City money per day - and has no CRA obligations to NYC's communities.
Boston-based State Street Bank & Trust was already an integral part of New York City's finances and is about to become even more so, yet the bank has no obligation under the Community Reinvestment Act to reinvest in our City. State Street handles the short-term investment of New York City treasury funds. The City has an average of roughly $6 billion in daily cash balances, an amount that fluctuates widely throughout the year. Most of this money is managed and invested by State Street, only to be transferred to the City Treasury when it is needed for day-to-day operations. State Street also provides management and advisory services to some of the City's pension funds. The Bank of New York Mellon has long been the custodial agent for the New York City pension system, but when that contract ends in the fall, it will be transferred to State Street. According to a press release by the NYC Comptroller, "State Street has been selected as the next Master Custodian for the five New York City pension funds...State Street will provide coverage for all asset classes held by the $137 billion pension system, including equity, fixed income, private market accounts, and hedge funds."
State Street is a wholesale bank with assets over $200 billion and total assets under custody and administration of $23.4 trillion, making it one of the largest providers of financial services to institutional investors. Given State Street's size and the amount it benefits from City business, we have to ask, what is State Street doing to reinvest in the low- and moderate-income residents and neighborhoods of New York City? In fact, State Street has no obligation under the Community Reinvestment Act (CRA) to reinvest in New York City. Most banks are evaluated under the CRA based on where they do business as determined by their branch locations. Wholesale banks like State Street, however, do not have traditional branches, so their CRA assessment areas are typically based on their headquarters. State Street is headquartered in Boston, MA with an assessment area comprised of the cities of Boston and Quincy, Massachusetts. This means that its core CRA activity must benefit those and their "Outstanding" rating indicates that they did so sufficiently. We see from their exam that State Street also participated in several statewide initiatives and some non-Massachusetts low-income housing investments, outside of the bank's assessment area. But the bank has no strategy specific to New York City's low- and moderate-income neighborhoods.
In its recent blog, ANHD outlined the billions of dollars New York City handles in day-to-day operations, bond financing, and management of pension funds. In Fiscal Year 2012 the City had $68 billion in revenue, $75 billion in expenses and issued nearly $13 billion in bonds. At the end of that same fiscal year, the City's five pension funds had $122 billion in assets and paid benefits totaling $11.5 billion. Every year, this money flows through financial institutions like State Street that provide important services to the City, and also receive significant fees and profits in exchange. ANHD believes that New York City should leverage its economic power, handing its business to financial institutions with healthy track records for meeting the service, credit, and reinvestment needs of our City's diverse neighborhoods.
The Responsible Banking Act, passed by the New York City Council in 2012, is a local response to outdated portions of the federal Community Reinvestment Act that requires all banks seeking to hold City deposits to demonstrate a track record and plan to help meet the credit needs of low- and moderate-income New Yorkers. Mayor Bloomberg has been stonewalling this legislation and we urge the next mayor to swiftly implement the law. State Street should be no exception - as a key institution that does business far beyond holding City deposits, State Street should be held accountable to the needs of our City by making community development loans and investments that benefit our low- and moderate-income residents and neighborhoods.
ANHD blog team: Benjamin Dulchin, Moses Gates, Ericka Stallings, Jaime Weisberg, Barika Williams, Eric Williams. Anne Troy, editor.