City leaders are advocating for so called “responsible ordinances” to evaluate bank investment strategies and encourage banks to lend to traditionally under-served communities, low income families and to invest in low income neighborhoods with these “responsible banking ordinances,” Governing Magazine reported earlier this month.
Local governments are trying to build upon the Community Reinvestment Act of 1977 that was designed to boost inner-city investment by requiring banks to report their lending and investment practices to the federal government and to help meet the credit needs in communities where they do business. Banks struggling in the slow economic recovery have been closing branches across the country, particularly in low income areas.
Laws like this could require that banks outline what percentage of their investment and lending will be steered toward low income communities. Cities like Boston, Los Angeles and Philadelphia have already begun drafting legislation. Some city leaders in Los Angeles have vehemently pushed back against these types of municipal banking ordinances, arguing privacy concerns and the risky practice of requiring banks to disclose important investment strategies in highly competitive city contracts. City leaders are hoping this type of legislation will encourage competition amongst banks to have the most positive city reinvestment record.
Some cities have already adopted practices similar to this. In Cleveland Ohio a bank is not eligible for a city contact unless they have a city-approved plan for reinvestment in local communities. Bankers in some cities are suggesting they would likely pass on city contracts rather than comply with a new set of municipal regulations requiring them to meet investment goals outside of their initial strategy.
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