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Which Financial Institutions Hold NYC's Billions?

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July 18, 2013

  In Fiscal Year 2012 New York City had $68 billion in revenue, $75 billion in expenses and issued over $13 billion in bonds­.  At the end of that 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 that provide important services to the City, and also receive significant fees and profits in exchange.  ANHD recommends that New York City 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.

For this blog, ANHD analyzed which banks and financial institutions the City gives business to, looking at deposits, cash balances, bond underwriters, asset management contracts funded by the pension funds, and contracts with City agencies for banking, services, asset management, procurement, and bond financing.  This may not cover every area, but it gives a good sense of who the city does business with, especially those with one or more entity covered by the Community Reinvestment Act (CRA).

For the City's daily banking operations, twenty-five banks are designated as eligible to hold city deposits, but the majority of banking is done with Chase, Citibank, Wells Fargo, Bank of America, and State Street Bank & Trust in Massachusetts.  In FY 2012, the Department of Finance had a daily average of $412 million in deposits.  DOF and city agencies (excluding the Comptroller) currently have over $66 million in active contracts with banks. The largest are:

  • Citibank: daily average $34 million in deposits in FY 2012; $16.8 million ($5.2 million per year) in contracts for the Central Treasury Account, Banking, and small travel procurements.
  • Bank of America: daily average $98 million in deposits in FY 2012; $22 Million ($6.2 million per year) in contracts for Lockbox and general banking services
  • Chase: daily average $180 million in deposits in FY 2012; $8.1 million ($1.8 million per year) in contracts for lockbox services and to process the City's payroll.
  • Wells Fargo: $100 million in deposits in FY 2012; $16 million ($2.6 million per year) for lockbox and banking services.
  • Chase, Bank of America, Citibank, and American Express also process over $45 million annually in purchases through their credit cards. These are not actual fees but likely generate profits in the form of interchange fees or "swipe fees."

Still, holding City deposits is only a small part of the business dealings with financial institutions.  Financial institutions manage City treasury and pension assets and manage bond deals through underwriting, letters of credit, liquidity, reissuing and re-marketing bonds, and advisory services.

There are also City-funded contracts for bonds and asset management.  Looking atCity-funded contracts with the Comptroller's office that started in the last 10 years, the City has nearly $443 million in active contracts (avg. $57.5 million per year) with financial institutions to manage city treasury funds, manage and provide research for pension assets, and provide services related to bonds (letters of credit, liquidity, marketing/remarketing).  The City has additional contracts for interest rate swaps, but because the fees are not as transparent in these transactions, they are not included in this analysis. The financial institutions include both independent firms and at least 18 that are banks or subsidiaries of bank holding companies that include banks with a clear CRA obligation in the city or elsewhere.

In addition to the "Big Four" banks, two other banks are particularly integral to the management of NYC.  The Bank of New York Mellon is the transfer and paying agent for the NYC bonds, receiving and paying out the interest to bondholders who must redeem their bonds from them.  BNY Mellon is also the custodial agent for the NYC pension system.  And State Street manages the short-term investment of NYC treasury funds.  The City has an average of roughly $6 billion in daily cash balances, but of course that fluctuates widely throughout the year. Most of this is managed and invested by State Street, only to be transferred to the City Treasury when it is needed for day-to-day operations.  Including these agreements, shared contracts with the pension-funded contracts, and other bond financing:

  • Bank of New York Mellon has $53.6 million in current contracts, averaging $9 million per year
  • State Street has $4.2 million in current contracts, averaging $1.4 million per year.

The largest total contracts with the Office of the Comptroller (over $10 million) are with the following CRA-covered banks and their subsidiaries: Bank of America ($70.5M , $6.5M/yr),  the Bank of NY Mellon ($53.6M, $9M/yr), Barclay's ($26.5M, $3.3M/yr), Chase ($25M, $1.2M/yr), Citibank ($23 million, $2.7M/yr), Wells Fargo ($19M, $1.9M/yr), Morgan Stanley ($17M, $1.9M/yr), Goldman Sachs ($12.6M, $1.7M/yr), and Mizuho Bank ($11M, $3.8M/yr).  However, many other banks have similar contracts, including the Bank of Tokyo, HSBC, US Bank, and TD Bank, as well as a number of institutions and international banks with no local CRA obligation at all.

These numbers will not capture fees paid outside of a registered contract, includingbond underwriting fees.  We don't have that breakdown, but senior managers and co-managers indicate the institutions that benefit the most from bond underwriting and trading.  In addition to independent non-bank firms, the following banks are senior managers and senior co-managers for one or more of NYC General Obligation, Transitional Finance Authority, and Municipal Water Finance Authority Bonds:

  • Senior Managers: Morgan Stanley, Bank of America, Chase, Citibank, Wells Fargo, Goldman Sachs.
  • Senior Co-Managers: Morgan Stanley, Bank of America, Chase, Citibank, Wells Fargo, Goldman Sachs, Bank of NY Mellon, PNC, RBC, TD Bank, US Bank.

The city also has over $820 million (avg. $287M/year) in active contracts with financial institutions funded by the pension system to manage these funds.  The majority of contracts, including 9 largest, are with independent non-bank financial advisors.  Seven contracts are with subsidiaries of bank holding companies that also have banks with a CRA obligation: State Street ($25 million), Morgan Stanley ($11.7 million), Goldman Sachs ($5 million), GE ($4 million), Wells Fargo ($2.2 million), Chase ($1.2 million), and Amalgamated ($415 thousand).

As the City prepares to implement the new Responsible Banking Act, it seems logical that it should look beyond the certified deposit institutions to include all financial institutions that benefit from doing business with the City.  The City could then channel its business to those that have clear plans and track records of meeting service, credit, and reinvestment needs in communities across the city - and curtail business with institutions that do not.  In the coming months, ANHD will release itsThe State of Bank Reinvestment in New York City: 2013 to clarify these track records.

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