L.A. City Council Revives Outreach Law for Banks

The Los Angeles City Council took steps Tuesday aimed at pressuring banks to invest in low-income, minority areas if they want to do business with the city.

The so-called linked banking law essentially requires city officials to select banks for municipal contracts based on financial institutions’ records of lending and service to the city’s poor neighborhoods. The criteria for evaluation by city officials and a community oversight board include banks’ rates on home mortgages, small-business lending, checking account services, even local charitable contributions.

The law was approved by the council seven years ago but languished until last year, after a high-profile bank acquisition. At that time, lawmakers pushed city officials to develop the rules and regulations under which the law could be implemented.

Council members and others say that the law will have a dramatic effect in Los Angeles and in surrounding cities.

“I think the impact will be enormous,” said Councilwoman Jackie Goldberg, who pushed to revive the law. “Banks are interested in the city of Los Angeles’ business.”

Alan Fisher, executive director of the California Reinvestment Committee, a San Francisco-based nonprofit group that reviews banks’ investments in minority areas, said the law is especially important in the city, which has been extremely hard hit by bank mergers. He said that national and regional banks are ruled by Wall Street and that they tend to have minimal community development investments.

But others are not so confident that the law will have a significant impact, despite the city’s $4-billion budget and billions more in bonds.

Jack Kyser, chief economist at the Los Angeles Economic Development Corp., said that while the law sounds good on the surface, he views it as little more than a “social, feel-good policy.”

“People approach banks like they’re huge charities,” he said. “They don’t understand the competitive rules for banks.”

Financial institutions, he said, must respond to stockholders and to Wall Street, and they probably now will weigh whether the city business is worth it.

But a Bank of America spokeswoman said she believes the law will not adversely affect the bank’s relationship with the city, which has about $35 million in accounts at the Bank of America, officials said.

Yet Councilman Mark Ridley-Thomas, who authored the original law that was approved by the council in 1992, said he believes too many communities are left out when banks merge or move.

Additionally, Ridley-Thomas said that the city’s law is stricter than the federal Community Reinvestment Act, and that the city must require financial institutions--particularly those headquartered elsewhere--to support all sections of the city.

Under the regulations approved Tuesday, a community oversight board would review the criteria and help analyze the data by which banks will be judged for city contracts.