The Banking Development District (BDD) Program
The Banking Development District or BDD program is a program designed to encourage the establishment of banking branches in areas across New York State where there is a demonstrated need for banking services, in recognition of the fact that banking institutions can play an important role in promoting individual wealth, community development, and revitalization. For example:
- Banks and credit unions are a source of capital for local businesses, which promotes job creation;
- Banks and credit unions are a source of capital for mortgages, which increases home ownership and allows home improvement;
- Banks and credit unions provide services that allow individuals to cash checks, pay bills, and transmit money more cheaply than other types of financial institutions, such as check cashers; and
- Banks and credit unions help people create wealth through savings programs and other banking services.
In light of this, the BDD Program seeks to:
- Reduce the number of unbanked and underbanked New Yorkers;
- Enhance access to credit for consumers and small businesses;
- Reduce reliance on alternative providers of financial services; and
- Promote an asset building consciousness.
While an institution may see the long-term potential of branching in a newly served area, there is often the short-term concern that it may take a number of years before a branch can attract enough retail deposits to become viable.
To encourage participation in the BDD program, $10 million in subsidized public deposits and other benefits are made available to banks and credit unions that open a branch in an underserved community. Banks and credit unions that successfully apply for a BDD designation are eligible to receive below market-rate deposits from the state of New York. These deposits are intended to lower the financial risk that the branch may incur when opening in an underserved community.
History & Authority
The New York State Legislature created the BDD program in 1997 by enacting Banking Law §96-d, which became effective January 1, 1998. The program was designed to encourage the establishment of bank branches in areas across New York State with a demonstrated need for banking services. As of December 12, 2019, §96-d was amended to include credit unions as banking institutions eligible to participate in the BDD program.
The purpose of the law is to encourage the establishment of bank and credit union branches within such a banking development districts to enhance access by consumers to banking services and promote local economic development. Underserved consumers may reside in urban or rural areas which may have different income levels, demographic characteristics and population densities. Regardless of an area's characteristics, it is anticipated that greater access to banking services will encourage the area's residents, who may have no (or limited) banking relationships, to become part of the financial mainstream. It is further anticipated that the establishment of a bank or credit union branch will provide a foundation to stimulate the local economy by enhancing access to capital for local businesses. This will promote long-term economic development, foster job creation, and promote community stabilization and revitalization.
Banking Law 96-d and other related amendments (see below) authorized municipalities to deposit funds at below-market rates into bank and credit union branches located in a BDD, including branches of state or federally regulated saving banks, savings and loan institutions, state-chartered credit unions, and federally-chartered credit unions.
Related Laws & Regulations
Authority for the BDD Program can be found in the following related laws and regulations:
- § 96-d. Banking development districts
- General Municipal Law - §10(2)(c) Deposits of public money; security
- State Finance Law §105(6) Deposits in banks
- Real Property Tax Law § 485-F Banking development districts
- General Municipal Law Article 16 § 6266-d(5)(b) Urban and community development program
- Part 8 of the General Regulations of the Banking Board
Under current Banking Law only banks, trust companies or national banks (which includes savings banks and savings and loan associations), and credit unions, whether state or federally chartered, are eligible to participate in the BDD program.
A bank or credit union must apply in conjunction with a local government (county, town, city or village) for the designation of a BDD area. The application must clearly define the geographical boundaries of the proposed district and must demonstrate not only that the community is in serious need of banking services, but also that this need is not being met by existing nearby financial institutions. The applicant also must show that by establishing a new branch in the proposed district, the institution is prepared to meet the specific, identified unmet need and that there is strong community support for the BDD designation. An application may be submitted by a bank or credit union which already has a bank branch within such area, provided that branch was opened after December 31, 1996.
BDD requirements are in addition to any requirements established by the Department of Taxation and Finance and the New York State Comptroller with respect to the deposit of public funds and the New York State Board of Real Property Services with respect to real property tax exemptions that may be available to banks within a banking development district.
The New York City BDD Program
In 2003, New York City adopted §1524 of the New York City Charter, creating a similar BDD program authorizing the deposit of below market rate city funds in newly established BDD bank branches located in any of the five boroughs. The program is governed by the New York City Banking Commission which is comprised of representatives from the offices of the Mayor, the NYC Comptroller and the NYC Commissioner of Finance. The Commission designates which banks are eligible for the city funds.
To be eligible, a branch must have opened after the area was designated a BDD by the Department, or the branch must have been approved by the Department for a BDD designation and opened on or after January 1, 1997. If the BDD application is approved, the successful NYC BDD applicant may be awarded an additional $20 million dollars in subsidized deposits from the City of New York.
The Banking Development Working Group & The Enriched BDD Program
In late 2004, the Department (at that time known as the New York State Banking Department), together with several New York State and City agencies formed the Banking Development Working Group to promote the newly established NYC BDD program. The Banking Development Working Group was comprised of the Department, State Comptroller, Empire State Development Corporation, NYC Comptroller, NYC Department of Finance, NYC Housing Authority, NYC Department of Small Business Services, NYC Economic Development Corporation, and NYC Schools Construction Authority.
The working group identified 11 NYC communities that were decidedly lacking in bank services and developed a menu of additional state and city incentives to heighten the appeal of the program to banks and encourage them to locate a branch in one of the identified neighborhoods.
Any BDD established in one of these communities is known as an “Enriched BDD” because of the additional incentives. A total of six “Enriched BDD’s” have been designated as a result of the working group’s outreach efforts.
10 Years In: A Review of the Banking Development District Program
In 2009, The Department did a thorough review of the Banking Development District (BDD) program.
Recognizing the potential of the BDD program to aid the economic development of communities and to jump-start the creation of wealth for individuals, the Department decided to undertake review of the BDD program at the 10 year anniversary of operation. The review was designed to identify the strengths and weaknesses of the program as it is currently operating, and to assist the Department in developing appropriate measures that would build on those strengths and eliminate (to the extent possible) the identified weaknesses.
The metrics used for the review included written surveys of the participating BDD banks that have been designated under the program and some of the community organizations within those 38 districts, public hearings (upstate and downstate) on the operation of the program and information culled from the annual performance reports submitted by the BDD branches to the Department.
A total of 27 BDD branches and 39 community organizations responded to the survey; 16 financial institutions, 11 community organizations, and seven public officials testified and/or submitted testimony for the public hearings.
Yulitza S. Franklin