Wednesday, November 21, 2012

Dennis Santiago: Has Los Angeles' Responsible Banking Initiative Been "Improved"?

(Originally posted to the Huffington Post)

The City Administrative Officer (CAO) of the City of Los Angeles is proposing that Councilman Richard Alarcon's Responsible Banking Ordinance (RBO) be altered and adopted using much-changed implementation criteria from previous versions of the draft legislation.

On Monday November 21, 2011, the Budget and Finance Committee will meet to do an up-or-down vote on these changes. That vote could fast-track it for a full vote by the City Council as early as Tuesday November 22, 2011. But are these changes in fact improvements to this very worthy initiative to promote greater transparency in how banks serve their communities or has what the CAO proposed set an unintended chain of consequences into motion that the City could live to regret?

According to the report released on November 18, 2011, the CAO recommends incorporating the tenets of the Responsible Banking Ordinance into the City's existing Contractor Responsibility Ordinance. It also recommends simplifying reporting and analysis criteria. But most important, the CAO recommends bifurcating treatment of the City's commercial banking and investment banking relationships. Specifically, that "the City should evaluate underwriters (investment banks) based on information pertaining to their underwriting services only. Any commercial banking services provided by their affiliates should be evaluated separately"; in other words, that the investment banking divisions of banks are not to be subject to RBO's community reinvestment criteria.

With regards to information collection, the CAO basically says they do not have the capability to collect data and analyze it. More importantly, they report that they've tried to ask banks and found what comes back to be problematic.

The report states,

As a pilot program, the CAO requested the 22 firms on the Qualified List to provide their affiliates lending information within the City of Los Angeles by zip code, as outlined in the draft RBO (see Attachment C for the Lending Information Request Form). The responses received from the firms were mixed. Thirteen firms reported that they only provide underwriting services therefore, had no lending information to submit. Two firms determined that their affiliates that participate in lending activities are separate entities and therefore, cannot report on their affiliates' business activities. However, one of these firms was able to provide their affiliate's CRA PE and SEC 10-K reports because these reports are publicly available online. Four firms were able to provide their affiliates lending information by zip code partly due to the fact that their lending activities in Los Angeles are few. One firm provided their affiliates' lending information by citywide. Another firm provided their affiliates' lending information by citywide and by zip code; however, explained that the firm can only provide information by zip code when it is publicly available. All other information not publicly available by zip code has a proprietary nature and/or is restricted by certain financial disclosure guidelines. Similarly, one other firm provided the lending information by zip code but declared that the information is proprietary and reserved the right to redact if necessary. Eight of the 22 firms provided their affiliates CRA score of which five firms received "Outstanding" scores and three firms received "Satisfactory" scores. After reviewing the responses, the data collected would be difficult to convert in a way the City can use to rank and score the financial institutions at the granular level as proposed in the draft RBO, notwithstanding the fact that the Treasurer does not have the staff nor the expertise to evaluate this type of data.
This did not surprise me on several fronts. When one asks banks broad questions, one typically gets broad answers. But note that they all responded in some fashion. The fact is that bank regulators don't ask broad questions, they ask specific ones that go into a report form that is ever-changing. Frankly, I was expecting the CAO to have figured that out and report back to the City Council that it wanted to ask for time to create a more structured surveying method to collect RBO data that the banks could respond to in a more organized fashion and try the process out with more banks from the area one or two more times before making a final recommendation. Instead what came back was a recommendation to narrow things to three indicators: the bank's CRA scores, its performance on Housing Programs administered by the City, and its small business lending book within the City.

This "solution" has a lot of problems. The reason is because the banking industry is not a landscape where every bank looks like every other bank. Quite the contrary, just like any other competitive business, banks specialize and occupy service niches. Banks specialize. Some make home loans. Others make small business loans. Yet others serve the larger companies that have some of the biggest impact on regional economic strength. Some banks cater to private wealth while others pursue specific subsets of the community. And regulations keep changing. For instance, did you know credit unions have recently been authorized to receive government deposits? All are part of the tapestry of a regional economy, one that has to grow as a whole if it is to be healthy. I've always believed it is unwise for a city like Los Angeles to focus on such a narrow band of criteria when it comes to identifying which banking and financial institutions to seek to do business with. The City needs to say it wants to see bank responsibility as a holistic picture and come up with a way to ask the right strategic questions. So far, while this caters to political interests, I'm not convinced that it fully addresses regional economic needs.

I continue to fear this aspect of City of L.A.'s approach threatens to inadvertently disadvantage some of the most economically important commercial banks, large and small, in the region. Banks that have done a good job of containing their exposures to troubled lending will show little participation in repair programs even though they are strong investors in the community. A bank working the over-$20M lending layer of the Los Angeles market may show poorly on small lending because it is serving a different vital aspect of the economy. Oddly, some of these poorer-showing banks based on RBO criteria are probably better equipped with the infrastructure to handle the City's business. Even weirder, some banks that make "expensive" interest and fee cost loans to small business would look good as would banks able to modify loans taking advantage of loss share agreements with the FDIC. These granularities are real and they need to be dealt with in better balance by the City of Los Angeles, or at least the ordinance needs to make provisions for them to be properly treated as part of implementation.

Things become somewhat more bizarre when it comes to investment banking services, specifically underwriting services. Here the CAO's report reads like a love letter to the investment banking divisions of the twenty-two Qualified List institutions it presently does business with. Basically, the CAO recommends exempting them from RBO criteria. There's an entire section explaining that despite the repeal of the Glass-Steagall Act, that the City still needs to treat investment banks, even ones the City has outstanding lawsuits with, as "Qualified."

Despite the fact that what remains of a decimated investment bank industry has seen all of the major players convert to Bank Holding Companies (BHCs) following the financial disaster of 2008, the CAO takes the position:

We recommend that the Council to consider each entity separately when determining the City's business involvement with that entity. In other words, the City should evaluate underwriters (investment banks) based on information pertaining to their underwriting services only. Any commercial banking services such as credit facilities provided by their affiliates should be evaluated separately.
The CAO is basically establishing a "separate and severable" clause in the law. It basically means a bank can demand that the City must ignore any practices by any other part of their business no matter how egregiously little that institution does to benefit the region. In other words, it creates a privileged class that can and will trump local bankers. It should be struck or at least amended so as to continue to hold the entirety of an organization "responsible' for it's behavior.

A far better suggestion observed by the CAO is that the City should seek to reinforce the RBO by encouraging the CAO to go further down the path of conducting investment banking transactions using a negotiated transactions approach, meaning one where more local entities are made part of the process.

The CAO report observes,

In the past three years, the City has formed the qualified underwriting teams for its bond financings to obtain the best available rates while meeting its policy goals relating to MBE/wBE/DBE participation and supporting local business growth. From July 2008 to June 2011, the City has completed 23 bond transactions (see Attachment L). These transactions consisted of four competitive sales and 19 negotiated sales. Of the 19 negotiated sales, eight transactions were senior managed by the large firms and 11 transactions were senior managed by the small to medium firms. The City has received positive feedback from its underwriters, indicating that our efforts have had a positive impact in their staffing levels in Los Angeles and have increased their participation level with other municipalities and governmental agencies. In addition, three underwriters have opened local offices and one firm has opened an office in California to demonstrate their commitment to Los Angeles and California.
Interestingly, the CAO asks for authorization to do business with the current Qualified List for three years. Just to be clear, this is an agenda item added by the CAO via this report that was not part of the RBO drafted by Alarcon et al. This is the staff writing law and should be look at as such by the Budget and Finance Committee.

My own recommendation is that City leaders should commend the CAO on progress so far but then take back control of where it goes next by instructing the CAO to expand the Qualified List beyond the 22 current members and pursue the criteria be that negotiated package consortium deals be such that in the future most transactions be constructed so that local entities fill in so that the investment banking deal team demonstrates that it meets all the RBO criteria for involvement in the regional economy. Further, City leaders should add accountability reporting to this process by,

a. Requiring the CAO issue an annual public report on the basis of continuing acceptance for each institution on the Qualified List; and reasons for removing or suspending an institution from the list.

b. The CAO should also be required to maintain an active program seeking new Qualified List bidders. The results of that recruitment program to be issued as a public report annually.

c. There should be a process for the public to comment on companies that are on the Qualified List.

This is a far better solution than the CAO's coping suggestion to keep investment banks with poor showings across the full spectrum of RBO competitiveness criteria in the game by selectively narrowing their evaluation criteria to just "corporate citizenship by demonstrating their active roles in the City of Los Angeles that include but are not limited to a development or participation in charitable programs or scholarships, and policies with regard to the use of women-owned, minority owned and disadvantaged business enterprises." That's 25% of the 100 point test of the RBO draft in its last version for investment banks while commercial banks must continue to face the full test.

This is a well-meaning but I think ill-conceived approach. Basically, the City is declaring that banks may substitute truly responsible business practices that have long-term impact on the regional economy by participating in "politically correct" programs. The problem is that this imbalance ultimately makes the City an ever-riskier investment, one that will affect its credit rating. It could drive mainstream businesses based on true free market principles out of the City of Los Angeles, a trend that is already an acute problem. In blunt terms, such charitable injections tend to be tokens. They are far too little in magnitude and destroy economies in the long run by creating businesses that are ill equipped to compete with other parts of the world that will show no mercy as they also compete to survive. Or have we forgotten to pay attention to the drain outsourcing has been on the United States again? This is setting Los Angeles up to be a long run loser.

And here's the irony on the City, charities are a cost of doing business investment banks will easily pay because they do factor it into the fee and cost recovery structure of future deals. There is no free lunch.

Reference:
"REPORT BACK ON THE IMPLEMENTATION PLAN FOR THE RESPONSIBLE
BANKING ORDINANCE AND AMENDING MOTION 24A," November 18, 2011, Miguel A. Santana, City Administrative Officer, City of Los Angeles, CAO File: 0220-02221-8970, City Council File: 09-0234-81

Follow Dennis Santiago on Twitter: www.twitter.com/DennisSantiago

Tuesday, May 15, 2012

KNBC4 (Video): LA Will Force Banks to Share Info on Loans to Homeowners and Small Businesses

KNBC4's Tori Guinyard covers today's historic vote.


View more videos at: http://nbclosangeles.com.


LA Will Force Banks to Share Info on Loans to Homeowners and Small Businesses

Ordinance requires banks that want to do business with Los Angeles to release information about loans to homeowners and small businesses.

By Reva Hicks
|  Tuesday, May 15, 2012  |  Updated 2:04 PM PDT
Los Angeles will require banks to release information on loans to homeowners and small businesses under an ordinance passed May 15.
The Los Angeles City Council on Tuesday voted unanimously to require banks that do business with the city to release information about loans to homeowners and small businesses.
The ordinance grew out of concerns raised in the wake of the housing crisis and credit crunch. A similar ordinance is being considered in New York.
"If you can't do something about bank irresponsibility, than you can't take action to protect  your interest," Councilman Richard Alarcón, who introduced the measure, said at a recent rally. "And you can't take action to hold the banks accountable for all the trouble they've caused."
In addition to requiring the banks to release information about small-business and home loans, the ordinance also asks for details on banks' investments within the city, and their participation in anti-foreclosure programs.
All 13 members of the City Council voted for the ordinance, which was first introduced two years ago by Alarcón.
Leland Chan, general counsel for the California Bankers Assn., said major banks support the ordinance's goals, but many are not in a position to crunch the data in the way that the ordinance would require.
For example, he said, banks already report information to the federal government on how many loans they make to moderate and low-income homeowners, as well as to small businesses. But they don't necessarily report all of their loans, or drill down to offer the information by census tract, as the ordinance would demand.
"We do all that but we just don’t do it the way they want," Chan said.
Alarcón has posted his views on the subject at www.responsiblebankingLA.blogspot.com.

BREAKING: Two Largest Cities in United States Simultaneously Adopt Responsible Banking Ordinances

FOR IMMEDIATE RELEASE
May 15, 2012

CONTACT
David Graham-Caso
213.393.9196 (cell)

Two Largest Cities in United States Simultaneously Adopt Responsible Banking Ordinances
Councilmember Richard Alarcón’s 2009 Motion Leads National Movement Toward Banking Accountability

(LOS ANGELES, CA) – City Councils in Los Angeles and New York City today simultaneously adopted similar Responsible Banking Ordinances, becoming the latest victories in a nationwide movement toward improved banking accountability.  The Los Angeles ordinance, authored by Councilmember Richard Alarcón in 2009, began a series of local efforts to improve social responsibility in how banks operate.  Last month, Councilmember Alarcón was recognized for his leadership in the national responsible banking effort when he received the “National Community Reinvestment Award” from the National Community Reinvestment Coalition.

“Every elected official has an obligation to ensure that taxpayer dollars are invested wisely – in institutions that are committed to our cities and our communities,” said Councilmember Alarcón.  “The Responsible Banking Ordinance will protect taxpayer money by allowing us to invest with better information.  We have come a long way since we first introduced the responsible banking ordinance in 2009, and I am proud to have helped achieve this victory for taxpayers in Los Angeles, and across the country.”

Councilmember Alarcón’s Los Angeles Responsible Banking Ordinance, which was approved by a unanimous vote at today’s City Council meeting, will create a public, transparent process for gathering information about banks’ history of service in communities in Los Angeles when considering which financial institutions to award future City contracts. The Ordinance would not preclude any financial institutions from doing business with the City of Los Angeles, but would rather require banks interested in doing business with the City to provide specific information about their work in Los Angeles.

The ordinance was supported as it navigated the Council committee process by a coalition of progressive and faith-based organizations, including LA Voice, OneLA – Industrial Areas Foundation, the Alliance of Californians for Community Empowerment (ACCE), the Good Jobs LA Coalition and SEUI 721.  The groups rallied in support of the ordinance before Tuesday’s Council meeting and dozens of supporters submitted public comment at the meeting

“OneLA has worked with Councilmember Alarcón over the last three years to protect families and their homes,” said Samuel Chu, Board President of OneLA – Industrial Areas Foundation. “This Responsible Banking Ordinance is the latest critical step toward much needed public transparency and accountability.”

After Councilmember Alarcón introduced the Responsible Banking Ordinance to the Los Angeles City Council in 2009, he helped start a coordinated national effort to achieve better banking accountability by bringing the program to the National League of Cities annual conference in 2010.  Based on programs that have yielded tremendous community reinvestment in Cleveland and Philadelphia, responsible banking ordinances have recently been approved or are being considered in cities including Seattle, Berkeley, Boston, Portland, Kansas City, San Francisco, and now New York and Los Angeles. 

“Councilmember Alarcón is a true champion for community reinvestment and bank accountability,” said National Community Reinvestment Coalition President and CEO John Taylor.  “By leading the efforts to pass a responsible banking ordinance in Los Angeles, the Councilmember has stepped up and set an example for public officials at every level of government across the nation.”

The Los Angeles Responsible Banking Ordinance will now be sent to Mayor Villaraigosa for his concurrence.

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Release: NCRC LAUDS PASSAGE OF RESPONSIBLE BANKING ORDINANCES IN NEW YORK AND LOS ANGELES


May 15, 2012

Jesse Van Tol, jvantol@ncrc.org 202-464-2709


NCRC LAUDS PASSAGE OF RESPONSIBLE BANKING ORDINANCES IN NEW YORK AND LOS ANGELES

Washington, DC -- Today, the National Community Reinvestment Coalition (NCRC) applauded the passage of responsible banking ordinances in New York City and Los Angeles, and commended the Association for Neighborhood and Housing Development (ANHD), an NCRC member organization, and Los Angeles City Councilmember Richard Alarcón for their efforts advancing the initiatives.

“This is a beacon of things to come,” said NCRC President and CEO John Taylor. “Local governments are becoming empowered to hold banks accountable to investing in our communities in a responsible way. In effect they are saying if you want to do business with our city, you have to play fair. We expect this trend will grow and continue in cities and localities across the nation.”

“We congratulate the Association for Neighborhood and Housing Development in New York, and City Councilmember Richard Alarcón in Los Angeles for this accomplishment. Their hard work played a key role in making these responsible banking ordinances happen.”

NCRC has been a leader in organizing local advocates to advance responsible banking ordinances. In 2010, NCRC released a model city ordinance to create community reinvestment requirements for depository institutions. The model ordinance is designed to increase the amount of responsible loans, investments, and financial services in minority and low- and moderate-income communities through heightened public accountability to municipalities and their residents.

In San Diego, City Council President Tony Young plans to introduce a responsible banking ordinance to the Council’s Rules Committee tomorrow.

About the National Community Reinvestment Coalition (NCRC):
The National Community Reinvestment Coalition is an association of more than 600 community-based organizations that promote access to basicbanking services, including credit and savings, to create and sustain affordable housing, job development, and vibrant communities for America's working families.

Monday, May 14, 2012

Advisory: Los Angeles, New York to Simultaneously Consider Adopting Responsible Banking Ordinances


***MEDIA ADVISORY FOR TUESDAY, MAY 15***

FOR IMMEDIATE RELEASE
May 14, 2012

CONTACT
David Graham-Caso
(cell) 213.393.9196

Los Angeles, New York to Simultaneously Consider Adopting Responsible Banking Ordinances
Two Largest Cities in America Could Approve Similar Landmark Laws on Same Day

(Los Angeles, CA) – Tuesday, May 15, 2012 could become a banner day for banking responsibility in the United States, as the City Councils of the two largest cities in the nation will simultaneously consider adopting similar banking responsibility ordinances.  The ordinances, which would each create public, transparent processes for gathering information about bank’s history of service in communities, will be considered by Councilmembers in Los Angeles and New York at each respective city’s Council meeting on Tuesday. 

WHAT:        Los Angeles Responsible Banking Ordinance

WHO:          Los Angeles City Councilmember Richard Alarcón

WHEN:       Tuesday, May 15, 2012
                    10am PT

WHERE:     Los Angeles City Hall
                    200 N. Spring St.
                    Los Angeles, CA 90012

MEDIA AVAILABILITY – LOS ANGELES

RALLY PRECEDING COUNCIL MEETING
Activists “from a coalition representing the 99%” - including ACCE, SEIU Local 721 and Good Jobs LA – will host a rally on the Spring Street steps of Los Angeles City Hall at 10am PT.  For more information about the rally, please contact: Jacob Hay, jacob.hay@goodjobsla.org or 310.855.2640.

COUNCILMEMBER ALARCÓN PRESS CONFERENCE
Councilmember Alarcón will host a press conference in the City Hall Third Floor Media Room (behind Council Chambers) immediately following the Council vote. For more information about this press conference, please contact David Graham-Caso at david.grahamcaso@lacity.org or 213.473.7007.

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FOR MORE INFORMATION
For more information about the Los Angeles Banking Responsibility Ordinance, authored by Councilmember Richard Alarcón, please contact David Graham-Caso at 213.473.7007 or visit www.responsiblebankingLA.blogspot.com.

For more information about the New York Banking Responsibility Act, co-authored by Councilmembers Al Vann and Domenic M. Recchia, Jr., please contact Mandela Jones in the Office of Councilmember Vann at 212.788.7354.

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Friday, April 20, 2012

RELEASE: NCRC TO PRESENT NATIONAL COMMUNITY REINVESTMENT AWARD TO LOS ANGELES CITY COUNCILMEMBER RICHARD ALARCÓN







April 20, 2012


Jesse Van Tol, jvantol@ncrc.org
202-413-5614


Eric Hersey, ehersey@ncrc.org
914-466-5720

MEDIA ADVISORY


NCRC TO PRESENT NATIONAL COMMUNITY REINVESTMENT AWARD TO LOS ANGELES CITY COUNCILMEMBER RICHARD ALARCÓN


Washington, DC -- Tonight, as part of its National Achievements Awards dinner, the National Community Reinvestment Coalition will present its National Community Reinvestment award to Los Angeles City Councilmember Richard Alarcón.


The National Community Reinvestment Award recognizes the individual who through their work over the past year has best exemplified the ideals and values of the community reinvestment movement and economic justice.

NCRC President and CEO John Taylor made the following statement:


“Councilmember Alarcón is a true champion for community reinvestment and bank accountability. By leading the efforts to pass a responsible banking ordinance in Los Angeles, the Councilmember has stepped up and set an example for public officials at every level of government across the nation. We commend him for his efforts, and are pleased to present him with the National Community Reinvestment Award.”


At this gala awards dinner, Dr. Julianne Malveaux, President of Bennett College, will serve as special guest host and master of ceremonies. The dinner will also feature remarks from special guest John Trasviña, Assistant Secretary for Fair Housing and Equal Opportunity at the U.S. Department of Housing and Urban Development.


This conference is open to the press. For more information, please contact Jesse Van Tol at 202-413-5614 orjvantol@ncrc.org, or Eric Hersey at 914-466-5720 or ehersey@ncrc.org

Thursday, April 19, 2012

Councilmember Richard Alarcón to Receive National Honor for His Landmark Responsible Banking Ordinance

FOR IMMEDIATE RELEASE
April 19, 2012

CONTACT
David Graham-Caso
213.393.9196 (cell)

Councilmember Richard Alarcón to Receive National Honor for His Landmark Responsible Banking Ordinance
National Community Reinvestment Coalition Will Award Alarcón the Highest Honor Bestowed by Organization

(Los Angeles, CA) – Los Angeles City Councilmember Richard Alarcón will be in Washington, D.C. on Friday, April 20, 2012 to accept the “National Community Reinvestment Award,” the highest honor bestowed by the National Community Reinvestment Coalition (NCRC). The award, which will be presented to Councilmember Alarcón during NCRC’s annual conference in Washington, D.C., is awarded annually to “the individual who through their work over the past year has best exemplified the ideals and values of the community reinvestment movement and economic justice.”

Once formally adopted, Councilmember Alarcón’s Responsible Banking Ordinance will create a public, transparent process for gathering information about banks’ history of service in communities in Los Angeles when considering which financial institutions to award future City contracts. The Ordinance would not preclude any financial institutions from doing business with the City of Los Angeles, but would rather require banks interested in doing business with the City to provide specific information about their work in Los Angeles.

Earlier this year, Councilmember Alarcón’s Responsible Banking Ordinance, which has served as a model for other responsible banking ordinances in cities across the country, was unanimously supported by the Los Angeles City Council when the Council voted to instruct the City Attorney to draft official language for the Ordinance. The Ordinance language will be voted on by the Council in the coming weeks.

The progress of Councilmember Alarcón’s Responsible Banking Ordinance in Los Angeles has added to growing national momentum toward increased social responsibility in how banks operate. Similar responsible banking ordinances have recently been approved or are being considered in cities including New York, Seattle, Berkeley, Boston, Portland, Kansas City and San Francisco.

More information about the Responsible Banking Ordinance, which was first introduced by Councilmember Alarcón in 2009, can be found at www.responsiblebankingLA.blogspot.com.

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