Felix G. Arroyo, Boston city councilor, is again proposing an ordinance that would require banks to demonstrate “commitment to Boston’s economy” in order to get “preferred status” for city deposits.
And again, the banking industry is wondering what exactly Arroyo is trying to accomplish. Banks are heavily regulated, and without detailed knowledge of the industry’s practices and concerns, Arroyo may be putting politics before pragmatism, Massachusetts Banking Association officials contend.
Arroyo told Banker & Tradesman that the number of foreclosures “we’re dealing with” in Boston is “obscene.” He also said he toured “every small business district in the city,” and the obstacle most mentioned by business owners was access to capital.
The “Invest in Boston” ordinance that Arroyo has proposed asks banks to report how much they’ve invested in the city. It would also require information about small business lending, qualified homebuyer programs, foreclosure prevention efforts and lending to development projects in Boston when the city puts out its RFP for its deposits every three years.
The city makes about $1 billion in deposits annually. Currently, about half of those deposits are with Citizens Bank. Other major deposit holders are Bank of America and U.S. Trust.
“We want to compare banks against themselves,” Arroyo said. “That’s a basic free market principle. We want to use your actual work in the city to determine whether you have access to the city’s deposits.”
He said the review process might even provide opportunities for smaller banks to land some city cash.
“In the end, nothing stops the banks that have the money now from applying and winning,” Arroyo said
Industry Concerns
But Kevin Kiley, executive vice president and COO of the Massachusetts Bankers Association, said the association is just as concerned about the Invest in Boston ordinance as it was a couple of years ago when Arroyo proposed a similar ordinance.
“Banks make more contributions to the local community than a lot of corporations,” Kiley told Banker & Tradesman.
Kiley said he worries that Arroyo’s ordinance doesn’t provide the level of nuance required when drafting regulations, local or otherwise, regarding banks.
For example, any city councilor who looks into the number of foreclosures on Bank of America’s books is going to see a large number. But that’s not the entire story.
“There are a lot of foreclosures in Bank of America’s case,” Kiley said, “but they assumed Countrywide, and they’re working as hard as they can to work that out.”
