A decision is expected by Tuesday in a legal challenge to a New York City law designed to pressure banks to invest more in local communities.

The ruling in the Big Apple could establish an important precedent for other so-called "responsible banking" ordinances in municipalities across the country. Philadelphia, Cleveland, Los Angeles, Pittsburgh, San Diego, Seattle and Boston are among the U.S. cities with similar laws.

New York's law was passed by the city council in 2012 over the veto of then-Mayor Michael Bloomberg. It called for the establishment of a new board that is charged with collecting a raft of data from banks about their small-business lending, their branches in low-income communities, their efforts to prevent foreclosures, and their lending for affordable housing, among other information.

The board, known as the Community Investment Advisory Board, is supposed to use that data in compiling a publicly released annual report about each bank.

The law would apply to banks that are eligible to hold New York's municipal deposits. The list, currently 21 banks, includes Bank of America, Citibank, JPMorgan Chase, U.S. Bank, Wells Fargo, HSBC, Santander Bank, Capital One Bank, Bank of New York Mellon and State Street Bank, as well as a number of smaller institutions.

According to the law, New York City's Banking Commission may consider the annual reports when deciding which institutions are eligible to hold New York's municipal deposits.

It is estimated that New York City has around $10 billion in cash on hand at the end of each day. So the law creates an incentive for banks to make loans and operate branches in New York's poorer neighborhoods.

Ex-Mayor Bloomberg never enforced the Responsible Banking Act, but his successor, Bill de Blasio, has taken steps to do so. Those moves led to a showdown between the city and the New York Bankers Association over whether the law illegally preempts state and federal banking regulations.

During a hearing in a Manhattan courtroom Wednesday, U.S. District Judge Katherine Polk Failla posed tough questions to the city's lawyer, Joshua Rubin, including whether banks could be punished for failing to provide the information required by the act.

"Are you telling me that no bank that is currently a deposit bank will suffer any negative consequences other than, if it is a negative consequence, publication in the annual report?" the judge asked, according to a transcript of the hearing.

"I can't represent what the Banking Commission will do," Rubin replied.

"And that is why I remain concerned," the judge said.

The judge also pressed the New York Bankers Association's lawyer, Robert Giuffra, on how far city officials can go in cajoling banks without interfering with the work of banking regulators. Giuffra conceded that the city's mayor is allowed to hold a press conference where he pressures banks, or can meet with bankers in an effort to twist their arms.

But the banking industry's lawyer argued that a mayor standing on his soapbox is different than the City Council passing a law, and creating and funding a new government entity that holds hearings and hires consultants. "And that's where they've gone way too far," he said.

At another point, the judge shed some light on her own thinking.

"It seems to me that New York City should have information in making decisions about the banks with whom it gives its deposits," she said. "And I'm still grappling with the notion of New York City as a conscientious investor or conscientious depositor of funds."

But then she said to the bankers' lawyer: "I think what you're saying is irrespective of the noble intentions, you are still confronted with federal law and state law that preempt them from doing what they wish to do."

"Clearly correct," Giuffra responded.

A spokeswoman for the New York Bankers Association declined to comment Thursday on the lawsuit. A spokesman for Mayor de Blasio did not respond to an email seeking comment.

Jaime Weisberg, a senior campaign analyst at the Association for Neighborhood & Housing Development, a community development group that supports the law, said: "I do not believe this is regulation at all. It's really a transparency law."

The city has asked banks to respond to an information request related to the Responsible Banking Act by Tuesday, and the judge is expected to issue her ruling before that deadline.

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