Enacts the community bank service corporation act

BILL NUMBER:S5624

Title of bill

An act to amend the banking law, in relation to community bank service corporations

Purpose

To permit community banks to invest in and utilize service corporations to achieve economies of scale when complying with regulations.

Summary of provisions

Section 1 - state that this act shall be known as the "Community Bank Service Corporation Act"

Section 2 - amends the Banking Law by adding a new article 2-D, "Community Bank Service Corporations", Section 88 of which outlines the authorized activities and investment therein of such corporations.

Section 3 - specifies enactment sixty days after it becomes law.

Justification

Community banks have significant regulatory burdens. Banking laws and regulations are based on a "one size fits all" approach. The consolidation of banks in the community bank sector is in large measure driven by economies of scale when implementing regulations. These regulatory costs are more easily absorbed by larger banks. Compliance costs are significant for the Bank Secrecy Act, anti-money laundering and information technology requirements. In some cases it might be possible for community banks to work collectively to provide services using another bank, third party vendor or jointly undertaking the performance of such services.

The community bank service corporation is a vehicle which would permit community banks to use such corporation to provide shared services among member banks. This approach would enable community banks to achieve more scale when responding to regulatory requirements. For example, a single information technology platform which would serve multiple member financial institutions could provide savings.

Under banking law § 235-d, there is currently authority to form service corporations for savings banks. This authority was added to banking law in 1983. This legislative proposal would expand this concept to all community banks, including federal and state chartered banks and thrifts under $8 billion dollars.

This bill is directed at providing community banks with an option for meeting compliance requirements. The objective is to preserve community banks in New York State which play an important role in small business and agricultural loans.

Legislative history

New Bill

Fiscal implications

None to the State

Effective date

Sixtieth day after it has become law