Andrew Yang Announces Plan to Create America’s First City-Backed Financial Institution In NYC

By creating PBNY, Yang aims to level the playing field for New York’s small businesses, giving them the resources needed to grow during the post-COVID recovery, while also bringing 100,000 new households into the mainstream banking system to help families save money and build credit. The PBNY will work in close partnership with existing Community Development Financial Institutions (CDFIs) and with mission-oriented technology companies and entrepreneurs.

In his first year as Mayor, Yang will invest $100 million into the PBNY. The PBNY will:

• Provide growth capital to CDFIs which they can use to offer a larger range of services in more neighborhoods at better costs; 
• Launch an Innovation Lab to arm CDFIs with best-in-class financial technology and bring the benefits of fintech products, like mobile-first banking, to more consumers; 
• Create a new People’s Bank certification for financial institutions in New York City that offer basic banking services with appropriate guardrails and commit to accepting NYC ID for purposes of opening accounts;
• Provide loan guarantees for traditional small business loans originated by CDFIs; and 
• Partner with CDFIs and mission-oriented technology companies to extend micro-loans under $50,000 to entrepreneurs that would otherwise be unable to access financing.

In New York City, approximately 354,100 households are unbanked and another 689,000 households are underbanked as of 2017 data from the NYC Department of Consumer Affairs and Worker Protection. Along racial lines, data from the 2018 FDIC National Survey on Unbanked and Underbanked Households showed about one-sixth of Black and Hispanic Americans surveyed did not own a bank account from a traditional bank or credit union.

Said Democratic Candidate for Mayor of New York City, Andrew Yang, “Despite our City’s vast financial resources, communities of color, immigrants and the working poor in New York are robbed of the necessary resources and capital to start a business and build a better life for their families. It’s an invisible tax on low-income New Yorkers and we have to do better. The plan I’m putting forth today is just the beginning of my commitment to building a chartered public bank in New York City. Countless advocates have worked tirelessly over the last few years to champion the ideas behind it, and I look forward to working with them both as a candidate and as Mayor to create our nation’s first ever City-Backed Financial Institution.”

Yang continued, “We live in the financial capital of the world, and yet, 12% of NYC households don’t have a bank account. Twice that many are underbanked and forced to seek alternative financial services such as check-cashing services, prepaid debit cards and high-interest loans, all of which are crushing countless families living paycheck-to-paycheck. Meanwhile, since the pandemic hit, Black- and Latinx-owned businesses closed at twice the rate of white-owned businesses.”

Said Jessie Lee, longtime New York City advocate for Community Development Financial Institutions, “A People’s Bank of New York is exactly the type of big, bold thinking that will help our city move forward. As an advocate who has worked in financial empowerment and for CFDIs my entire career, I am encouraged to see Andrew Yang proposing a concrete strategy to bring mainstream financial services  to communities that need them to save, build credit and become financially stable. The People’s Bank will also play a critical role in helping small businesses recover from COVID. I am proud to join in this announcement and look forward to seeing the People’s Bank become a reality.”

Andrew Yang’s Plan for The People’s Bank of New York 

• Expand the Reach of the City’s Community Financial Institutions. National surveys show that households most often cite “convenience,” including geographic proximity, as a reason for being underbanked. Such bank deserts are a huge driver of high unbanked rates. Meanwhile, evidence from other states suggest that the most successful banking-access programs revolve around local financial providers working in partnership with public entities. The People’s Bank will therefore provide loans to the nearly 50 existing Community Development Financial Institutions (CDFIs) in the City. These credit unions, community banks, minority depository institutions (MDIs) and loan funds already know the needs of the neighborhoods in which they operate and have built strong relationships of trust over many years. With additional capital, CDFIs will be able to improve the services they offer their customers and expand their reach. 

• Spur Innovation in Fintech to Benefit Lower Income Consumers: Over the past few decades, the U.S. banking sector has been heavily consolidated, depriving communities of local banks that can support small businesses. One major driver of consolidation is the cost of deploying technology. For smaller community financial institutions, technology costs are often prohibitive, creating a digital banking divide between the wealthy and lower-income families. 
• To address that digital divide, the People’s Bank will establish an Innovation Lab that will arm CDFIs with best-in-class technology to help them reach more New Yorkers and to bring the benefits of fintech products to more consumers. For example, the Innovation Lab might partner with mission-oriented technology companies and entrepreneurs to build a consumer-facing banking app that can be licensed for use by existing CDFIs. 
• Connecting Basic Income to PBNY. As Mayor, Andrew Yang plans to create the nation’s largest basic income program, allocating $1 billion in his first year towards alleviating deep poverty by giving eligible New Yorkers up to $5,000 a year. Along with notice of their eligibility for UBI, the City will mail recipients pre-filled forms that can be brought to a local CDFI in order to open an account. Opening a bank account through this mechanism will be one of the fastest and most secure ways to access payments, and is expected to encourage approximately 55,000 households to open their first accounts.

Level the playing field for small businesses:

The number one problem that minority small business owners face is lack of access to capital. In a recent survey, two-thirds of minorities seeking funding for their small business stated they had been denied. These denials are most often due to lack of assets (37% of denials), but low credit scores are also a frequent impediment to Black and Latinx entrepreneurs starting a business.

Said Andrew Yang, “On average, Black-owned businesses are launched with just $25,000 — compare that to the $106,000 white-owned businesses start with. It’s unconscionable. Starting on a shoestring budget makes it much more difficult to turn a profit in good times, let alone survive the economic shocks wrought by something like COVID-19. Between February and April, 41% Black- and 32% of Latinx-owned businesses closed completely. That’s twice the rate of better-capitalized white-owned businesses. We need a People’s Bank to ensure that our small businesses are given the chance to succeed with affordable capital and a patient lender when they need it most.”

To lift up small businesses, the People’s Bank will guarantee a portion of small business loans originated by CDFIs above $50,000, helping CDFIs to accelerate their small business lending. The capital infusion allows lenders to consider more applicants for small business loans and helps small businesses struggling to keep their doors open gain breathing room to operate. These efforts will give a new generation of entrepreneurs a shot at building the businesses their community needs. All told, these efforts will support the creation of 15,000 new small businesses by 2022.

Said Andrew Yang, “We’re going to help entrepreneurs break free from the Catch-22 they currently face — few assets and little credit history mean no capital, no capital means no chance to accumulate assets and build credit — by guaranteeing a portion of loans above $50,000 at the loan level. Lenders will be able to reduce the risk they take on in making larger small-business loans. A partial City backstop will broaden the pool of New Yorkers who can get loan approval, while guaranteeing lenders an adequate risk-return profile.”

While The People’s Bank will help provide capital to sectors of the economy that have historically been underfinanced, it will not be in the business of giving handouts. Providing capital to CDFI’s to make for-profit loans will both enforce market discipline, ensuring that businesses most likely to be sustainable are funded, and will help entrepreneurs build credit.

Business-owners who successfully repay their initial loans from city-backed CDFI will then be in a stronger position to tap traditional credit markets, giving these borrowers increased term-flexibility, and allowing CDFI funding to be redeployed to subsequent waves of borrowers.

PBNY will also establish a first loss guarantee program for loans below $50,000. Even for borrowers with good credit and sufficient assets, CDFIs are often unwilling to extend very small loans — as little as $5,000 or $10,000 — to entrepreneurs. Small businesses owners and entrepreneurs stated, in a recent survey, that their top needs today are seed capital, and quickly accessible, low cost lines of credit.

The transaction costs for banks when originating such loans are too high, relative to the expected return, to make such lending sustainable. In addition to investing in CDFIs origination capabilities, The People’s Bank will partner with CDFIs and technology companies to provide a first loss guarantee for loans under $50,000 at the portfolio level. This will allow lenders to streamline their approvals process for borrowers seeking small loans, knowing that their aggregate risk on these loans is capped.