Plan to Aid Minority Banks OKd

In a strategy designed to boost investment in economically depressed sections of Los Angeles, the City Council approved a proposal Wednesday to increase city deposits in minority-owned financial institutions.

The city treasurer’s office will explore several strategies for putting more money into minority-owned banks and savings and loans, including creating “links” between the relatively small institutions and large banks that currently handle most of the city’s money.

Increasing capital in the minority-owned banks will, in turn, make more funds available to minority business people, said Councilman Mark Ridley-Thomas, sponsor of the measure, which won unanimous approval.

Ridley-Thomas said he had been interested in the proposal for months, but said the riots that devastated many of the city’s predominantly minority neighborhoods “sharpened the need.”

“This is about the issue of economic empowerment,” Ridley-Thomas said. “If there is any argument to be made that economic disparities contributed in some way to the unrest, it has to be remedied by having more substantial participation by people who have historically and systematically been locked out of the system.”

Minority banks have traditionally been prevented from handling substantial government deposits because of the high collateral that state law requires to guarantee deposits, said city Treasurer Paul Brownridge.

Among the policies that the city will consider is one that would permit smaller financial institutions to use home mortgages and other assets as collateral, rather than the government securities that have previously been used.

Another policy would be to encourage the city’s largest banks, including Bank of America, to enter into partnerships in which they would guarantee deposits made at the smaller institutions.

The city could encourage such an arrangement by making it a requirement when it contracts with major banks for services, Brownridge said.

“This would be a way for the larger institutions that are not so heavily involved in South-Central and other parts of the city to do that and to serve the community, without actually having branches there,” Brownridge said.

The city treasurer said the new initiative might even induce the city to reinvest some of its money in long-term accounts. The city abandoned such investments in 1989 after a controversy involving allegations that Mayor Tom Bradley attempted to influence investments in a minority-operated bank for which he served as a paid adviser.

“In the past, our investment goal had just been safety,” Brownridge said. “But now we will also have a policy to encourage investment in other parts of the city” that do not have many bank branches.

Details of the plan must still be worked out, but the City Council called for fast action. It asked for a strategy to be formulated by July 15 to link smaller institutions with industry giants.

Nationwide, black-owned banks and thrifts have had a better record of making loans to black home buyers and black entrepreneurs, according to Creative Investment Research, a Washington firm that tracks minority lenders.

However, the city’s program is designed to let smaller institutions benefit from the city’s deposits regardless of the owners’ ethnicity, Ridley-Thomas said.

The financial spark that could be generated by the city is substantial. It has an investment portfolio totaling $2.5 billion and moves more than $15 billion through financial institutions every year.

“We have a unique opportunity to present some leadership in the banking community,” Brownridge said.

The city proposal is the latest in a series of initiatives designed to improve the standing of minorities in local financial institutions.