N.Y. Bank Caught by Dodd-Frank Seeks Relief from Congress

WASHINGTON — During the early stages of the financial crisis, New York City's Emigrant Bank was concerned about the possibility that its uninsured high-balance depositors might flee, so it turned to the Federal Home Loan Bank of New York for a $2.3 billion advance.

That prudent decision could end up costing Emigrant $300 million in Tier 1 capital, an executive at the bank told lawmakers on Friday.

"It seems like a perfect example here that no good deed goes unpunished," said Democratic Rep. Carolyn Maloney.

The $2.3 billion loan temporarily pushed Emigrant's total assets over $15 billion. Because it was briefly above that threshold, the bank will be subject to a provision of the Dodd-Frank Act that prevents banks from counting trust preferred securities as part of their Tier 1 capital.

As a result, Emigrant is asking Congress to pass a bill designed specifically to benefit the bank, which currently has $10.5 billion in assets and primarily serves customers in New York's outer boroughs.

Though no lawmakers objected to the measure at Friday's hearing, it has raised some eyebrows in Congress because its goal is to help a single firm.

The bill, which is sponsored by GOP Rep. Michael Grimm and co-sponsored by six of his House colleagues from the Empire State, would push back the date by which banks needed to be under $15 billion in assets in order to avoid the new capital requirement.

The Dodd-Frank Act set the cut-off date at Dec. 31, 2009. Grimm's proposal would push that deadline back by three months, beyond the date when Emigrant paid back the $2.3 billion loan and fell below $15 billion in assets.

Richard Wald, Emigrant's chief regulatory officer, testified that unless the law is changed, his bank will lose $300 million in Tier 1 capital over three years, beginning in 2013.

"I think it will impair or curtail lending," Wald testified. "In year one alone we would lose the capacity to originate $2 billion in one- to four-family, bread-and-butter residential real estate loans."

The hearing before the House financial institutions subcommittee was convened after Rep. Barney Frank objected to a procedural move by Grimm that would have allowed the entire House to vote on the measure without there being a hearing or a committee vote.

Frank, the committee's top Democrat, said during Friday's session that he does not anticipate that he will have any substantive objections to the legislation.

But he noted that the bill will only affect one bank — that point was affirmed by New York Rep. Carolyn McCarthy, one of the bill's co-sponsors — and he argued that it should receive public scrutiny.

"I was asked if we could do this in a way that would move quickly, and my answer was, 'Yes, I'd like to move quickly, but I think it's important that it be done in the light of day,'" Frank said.

The part of Dodd-Frank that the legislation seeks to change is known as the Collins Amendment, a reference to its sponsor, GOP Sen. Susan Collins. But a key driving force behind the 2010 amendment was the Federal Deposit Insurance Corp. and its then-chairman, Sheila Bair.

Both the FDIC and Bair were given the chance to comment on Grimm's legislation, and neither raised an objection, according to Frank.

"I myself have not seen substantive objections," Frank said. "And I would expect as a result of this hearing if we don't hear any substantive negative objections this bill will proceed, it will be voted on."

The bill is expected to receive a vote in the Financial Services Committee sometime after Memorial Day.