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MICHAEL P. SMITH
PRESIDENT and CHIEF EXECUTIVE OFFICER
NEW YORK BANKERS ASSOCIATION
BEFORE THE
ASSEMBLY STANDING COMMITTEE ON BANKS
NEW
YORK, NEW YORK
MAY
26, 2005
Chairwoman Nolan and
Members of the Committee, my name is Michael P. Smith and I am the
President and Chief Executive Officer of the New York Bankers
Association (NYBA). Thank you for the opportunity to testify today on
the Banking Development District program, and the benefits it has
extended to communities throughout New York State. Our Association is
comprised of the community, regional and money center banks which do
business in the State of New York and which have, in the aggregate more
than 320,000 New York employees and assets in excess of $3 trillion.
With the full support
of the New York Bankers Association, you and your colleagues in the New
York State Legislature, together with the Governor, established the
Banking Development District (BDD) program in 1997 to enhance incentives
for banks to establish branches in areas in need of banking services.
The program provides a package of incentives for BDD branches, which may
include increased public deposits from the State and from the local
government for the community in which the branch is located and relief
from property taxes and certain other taxes on the branch for up to ten
years. In addition, the Banking Department provides enhanced Community
Reinvestment Act credit for Banking Development District branch
activities. If the branch is also located in an Empire Zone, job
credits and sales tax exemptions may also be available. Finally, some
local governments have established enriched BDD programs, providing
additional incentives that match the local needs of their communities.
The BDD program is
consistent with a long history of community development initiatives
pioneered or supported by the New York Bankers Association. In the
early 1990’s, the Association took the lead in working, first with the
New York State Banking Department and later with the federal banking
regulators, to reform the regulations implementing the Community
Reinvestment Act to reduce the Act’s reliance on paperwork and channel
increased funds into local lending and investment. New York State, with
our support, was among the first states to pass basic banking
legislation and is still unique in the breadth of coverage of its basic
banking account. Most recently, with the Banking Department, we
supported a basic banking account incentive program regarding earned
income tax credits. We supported the establishment of, and provided
needed capital for, the New York Business Development Corporation, which
is celebrating its 50th anniversary this month and which
extends more than $400 million annually in loans to small businesses
throughout the State. All of our member banks on a day-to-day basis are
deeply involved in the economic development and vitalization of their
local communities.
The Banking Development
District program was established in recognition of the fact that there
are communities that may not have the economic resources, on their own,
to attract banking services and locations. Local banking offices are
essential for customer convenience and in helping to establish
meaningful relationships between the community and financial
institutions. At the time the program was established, the banking
industry was undergoing a wave of mergers and consolidation that
reflected the establishment of nationwide interstate banking and
branching.
In the past few years,
branching activity in New York’s banking industry has increased
significantly, with new branches opening throughout the State on a
regular basis. In addition, several out-of-state banks have entered the
New York market even as there has been an increase in the issuance of
new banking charters. The Banking Development District program has
complemented this development and clearly contributed to this expansion
of branching in New York, with fifteen BDDs approved to date by the
Banking Department. The Districts have ranged in geographical location
from Buffalo to New York City and have contributed jobs, loans and
banking services to the communities in which they have been located.
Our Association
believes that the success of the BDD program is dependent, in large
part, on its ease of implementation. Initiated by an application from a
local government which has identified a portion of its community as in
need of banking services, a BDD branch approval by the Banking
Department can come faster and at less cost than other types of full
service branches. Once established, BDD branches can attract as core
deposits government funds, often at rates lower than those paid on
non-government deposits. BDD branches have been particularly useful for
community banks, including community banks operating in New York City.
In fact, ten of the existing Banking Development Districts are in New
York City.
As to any changes in
this successful program, we would urge simplicity and flexibility. We
believe that the Banking Department is the appropriate State agency to
coordinate and communicate regarding implementation of the program along
with periodic reports on its status and the approval process. We would
defer to its judgment on the need for hearings and other procedural
matters. We would greatly prefer that the Department and local
governments report directly to you on the status of ongoing activities
of the program. Additional reporting requirements, particularly at the
branch level, may very well prove counterproductive and duplicative.
In summary, we continue
our strong support for the Banking Development District program. We
commend the Chairwoman and the Committee for airing the benefits of the
program today. We would support any changes that seek to streamline and
enhance its administration. Our Association is grateful to the members
of the New York State Legislature and to you, Chairwoman Nolan, for your
initiative in holding this hearing and your continued support for the
BDD program.
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