Since New York Gov. George Pataki signed legislation in 1997 that gives banks incentives to build branches in low-income neighborhoods, only a handful have taken the state up on its offer.
So late last year Diana Taylor, New York's banking superintendent, set up a working group to find out why. What she concluded is that more banks might have taken advantage of the Bank Development District program if they had only known it existed.
"I talked to a banker at one large bank that was opening branches all around [New York City] and he had no idea about the program or how it worked," Ms. Taylor said in an interview Tuesday.
Now the program is getting a makeover aimed at raising its profile and getting bank branches started in more underserved communities across the state.
Originally, banks received partial property tax breaks for 10 years and select government deposits for a period of two years - at below-market rates - if they set up shop in neighborhoods that banking regulators had pegged as underserved. Banks would have to identify these communities and then petition the state for approval.
The "Enriched" Bank Development District Program eliminates perhaps the most cumbersome step for banks - finding a district that would meet regulators' definition of underserved. Instead, Ms. Taylor's office will single out communities that need branches and let banks in the surrounding areas know about the opportunity.
"What we have done is a lot of the groundwork for banks," Ms. Taylor said. "So rather than having them have to find an area and then come to us, we are being proactive and saying, 'Here are areas that are underserved, and if you come to us with an application in these areas then you will likely get approved.' "
Additionally, the state has increased the pool of deposits in the program from $60 million to $100 million. Banks in New York City will be eligible for further tax benefits and assistance in finding branch sites through the city's Empire State Development Corp., Small Business Services, and Housing Authority.
"The main incentive is still the deposits, but it's helpful to have the city agencies involved and providing assistance," Ms. Taylor said.
The initial goal is to encourage bank development in the five boroughs that make up New York City. The Banking Department has identified 11 neighborhoods, including Staten Island's Rosebank section, where Victory State Bank plans to open a branch next spring.
But Ms. Taylor said her department is establishing districts in other underserved areas of the state. She said that last week she was in Buffalo talking with city government and bank officials about which neighborhoods are most in need. The $748 million-asset Greater Buffalo Savings Bank has already committed to opening a branch in a Bank Development District, she said.
Though she has reworked the program to make it more visible and appealing, she said the overall objective is the same: getting financial services provided to communities that banks have long neglected. Other states and municipalities have discussed ways to get banks into these communities, but New York is the only state to offer tangible incentives for such development.
Rosebank was the first community that the state labeled a Bank Development District. The working-class community north of the Verrazano Narrows Bridge has never had a bank branch of its own.
Merton Corn, Victory's president and chief executive officer, said that he first thought about opening a Rosebank branch after some residents approached him about the idea. But he said what really motivated Victory to move into the neighborhood was the promise of government deposits.
"The bonus of getting the deposits certainly made a branch in this area more attractive," he said.
The $226 million-asset bank has one of its other four branches in a Bank Development District, the St. George neighborhood of Staten Island. Mr. Corn said that when the branch opened four year ago the state deposited $10 million and the city deposited $5 million, which helped the branch quickly become profitable.
The Banking Department is promoting the revamped program and the newly selected development districts by giving presentations to banks in each of the five boroughs and talking with banks individually.
Ms. Taylor said there has been a great deal of interest since the new fine-tuning of the program and the stepped-up promotion. Six banks are looking into starting branches in the new districts, including two that want to move into the same area, she said.
