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Connecticut lawmakers have proposed a state-backed bank to lend money for community development, on the heels of the Federal Reserve Bank of New York noting a recent tightening in credit access by big banks.
The bill is sponsored by Rep. Ezequiel Santiago (D-Bridgeport), the new co-chair of the banking committee where the legislation will get initial consideration, as well as Bob Godfrey (D-Danbury), Kim Rose (D-Milford), Michael DiMassa (D-New Haven), David Michel (D-Stamford) and Anne Hughes (D-Weston).
Santiago’s co-chair on the banking committee is freshman Sen. Alex Bergstein of Greenwich, an attorney focused on nonprofit causes whose spouse Seth Bergstein is a managing director with Morgan Stanley overseeing investment banking in the business-services sector.
Bergstein last week introduced her own legislation eyeing the creation of a Connecticut bank for transportation infrastructure funds, and another bill to authorize a study on whether to extend the concept to include New York, New Jersey, Massachusetts and Rhode Island.
In the newest assembly bill on file that would create a State Bank of Connecticut, initial expectations for startup capital and other details were not provided immediately. The committee has yet to set a hearing schedule for bills it is considering.
Connecticut’s government is an experienced lender and financier to both businesses and households, via entities like the state Department of Economic and Community Development, the Connecticut Higher Education Trust and the Connecticut Innovations venture fund which operates semi-autonomously with state backing and subject to state oversight, the presumed model for any state bank of Connecticut.
In a study three years ago of the credit implications of the 2009 recession, the Federal Deposit Insurance Corp. found that many small businesses suffered “severe credit supply constraints” in FDIC’s words, with banks spooked by poor balance sheets and credit histories.
As of September, Connecticut banks had extended an additional $2 billion in loans to residents and businesses compared to a year earlier, bringing to $83 billion the total amounts outstanding.
In its periodic Beige Book economic review last week, the New York Fed reported that while terms for residential mortgages remain unchanged, commercial loan terms are tightening despite no evidence of any spike in problem loans.
Speaking Thursday on a conference call with investment analysts, the Webster Bank CEO John Ciulla said the company continues to see heavy competition in Fairfield County for borrowers, but less so in central Connecticut where the Waterbury-based bank has a major presence, while noting the company has seen no change in the ability of borrowers to pay off their loans.
