On Monday, May 20, IBANYS testified in Albany on behalf of New York's community banks at a Joint Hearing of the New York State Assembly Committees on Banks and Local Governments. (The full transcript will be available soon at www.ibanys.net.
The hearing was to consider allowing credit unions to accept public deposits (state and municipal deposits). Banks Chairman Ken Zebrowski (D-Rockland County) and Local Government Chairman Fred Thiele Jr. (D-Suffolk County) presided.
IBANYS was represented by:
- IBANYS Chairman Tom Amell, President & CEO, Pioneer Bank;
- Industry consultant Lawrence Heilbronner-Kolthoff (who spent 21 years as CFO of The Canandaigua National Bank and Trust Companyand was a Director of the Bank);
- Kevin Klotzbach, EVP & Senior Financial Advisor of the Five Star Bank who also served as the bank's CFO and Treasurer.
- I also had the privilege of testifying before the Committees.
Larry provided the Committees with an overview of New York's community banks and their involvement in municipal deposits.
He noted the
137 community banks in New York State (those with less than $10 Billion in assets) include commercial banks and savings banks, hold a combined $193 Billion in assets, approximately $150 Billion in deposits, and account for 94% of all banks in the state and 18% of assets and deposits. Nearly 100 community banks hold approximately $12.2 billion in municipal deposits, representing approximately 45% of all municipal deposits of all banks in New York State. For a large number of smaller institutions, municipal deposits represent a significant source of funds to make loans and invest in municipal bonds. Municipal deposits account for nearly 10% of core funding for community banks.
Kevin provided insight and specifics into how allowing credit unions into the business would impact an individual bank's profitability and bottom line.
In many small towns, villages and hamlets across New York, community banks are the only financial institutions operating branches. Should community banks lose access to core funding provided by municipal deposits to unfair competition, these communities will have few options, all of which will be economically detrimental.
As we all know, allowing credit unions to accept these deposits removes taxable income from New York State, with no resulting benefit to the communities or the state, since the credit unions will not make more loans than can already be made. Some banks may find it no longer economically viable to continue and will have to sell, merge, or go out of business. It is not competition to which community banks object; there is ample competition in the current business environment. Rather, it is the unfair competition to which we object. The playing field should be made level, and should include all.
One thought on levelling the playing field would be to allow credit unions to enter the municipal deposits business only by creating taxable commercial bank subsidiaries, as savings banks must do. We noted this would protect against a loss of NYS tax receipts or risks to the economic viability of our communities. Another thought would be to allow all regulated depository financial institutions (commercial banks, savings banks, credit unions) to accept municipal deposits, and make the net income from these activities fully tax-exempt.
Chairman Tom Amell wrapped up IBANYS testimony by effectively contesting a number of statements made by the credit union representatives as factually incorrect, and summarized the reality that allowing tax-exempt credit unions to accept public deposits would have a serious negative impact on community banks' profitability and ability to continue to serve the needs of our local customers and communities throughout the state.
The Committees very much appreciated IBANYS' providing the facts behind our testimony, and our providing answers to previously unanswered questions.
We'll keep you informed of further developments as they unfold.
Thanks to those who testified so well on our behalf, and to all the IBANYS members who supported our effort with their input, information and legislative outreach on this issue.