The City Council is looking to attach some strings to banks that receive city deposits. It’s poised to pass legislation Tuesday that would give the city authority to evaluate a bank’s lending practices in low and moderate income neighborhoods when deciding which banks may be certified to receive city deposits.

As of  September 2011, 31 banks were receiving nearly $670 million in taxpayer deposits, according to the office of Councilman Albert Vann, who sponsored the bill.

The bills supporters argued that as the banking industry has become more consolidated, larger banks have become out of touch with local credit needs.  The Association for Neighborhood and Housing Development has been pushing for the legislation for about two years.

“There should be a process that links how taxpayer money benefits local banks with which banks are doing the most to meet local credit needs,” ANHD Director Benjamin Dulchin said.

The legislation creates an eight member advisory board that would determine the banking needs of low and moderate income neighborhoods by holding public hearings in each borough every two years. The board would also analyze data provided by banks to evaluate which institutions were successful at meeting the needs of the community.

The Banking Commission, made up of the mayor, the comptroller and the Department of  Finance commissioner will ultimately retain its power over which institutions get certified.

Still, the city’s Department of Finance came out against the bill, saying it over reaches and is too expensive.

“We recognize and support the need for all communities to be sufficiently serviced by banks. However, this is already a function of the federal and state governments,” wrote Commissioner David Frankel.

The New York Bankers Association also lobbied hard against the legislation. NYBA President Michael Smith said the bill would create a disincentive for banks to do business with the city. 

“When you set up a whole new set of parameters in any business which could be used to make the bank look not responsible, then it represents what we believe to be a reputational risk,” Smith explained.

But Vann, who represents Bedford Stuyvesant, said he often hears from small businesses unable to secure loans and homeowners facing foreclosure who are looking for loan modifications. “The backlog in foreclosures in New York City and New York State is more than any other area in the country…which means we have a tall order to do a lot more,” Vann said.

The mayor opposes the legislation and a spokesman said he would veto it.

Vann countered that 38 council members have signed on as sponsors of the bill and are expected to vote in favor of it — enough to over ride a mayoral veto.