The city government of the District of Columbia is considering a measure that would move city cash out of megabanks and into local banks, in an effort to stimulate local business lending, reports the Washington Business Journal. The bill would require the District’s CFO to move a significant amount of city capital into local banks, and these local banks would be required to originate small business loans totaling twice the amount of city funds deposited. The proposed law was introduced earlier this month.
Currently, according to the WBJ, DC keeps its funds in accounts with Bank of America and Wells Fargo, based in Charlotte and San Francisco, respectively.
Should the legislation pass, the CFO would move some of these funds into local banks, who would be required to lend out twice that much capital to small businesses. The council hopes that this would help spur more local development.
The bill was co-introduced by all but one member of the 13 member legislative body. A bill needs only seven votes to become law, giving this law more than a good chance of passing.
According to the WBJ, very few banks in Washington DC would qualify for the program, which has stringent definitions for what constitutes local. In this case, the banks must have at least five branch locations within the District of Columbia — apparently the suburbs don’t count — and they must have assets “no fewer than $250 million and no greater than $5 billion, and meet the regulatory classification of ‘well capitalized,’” writes the WBJ.
While it’s not affiliated with the movement, DC’s move does call to mind the Move Our Money campaign from November, which encouraged large financial entities like corporations and city governments to move their money out of megabanks and into local banks and credit unions. It was to be like Bank Transfer Day, which encouraged individuals to divest from big banks, but bigger for the fact that corporations and city governments have more money.
DC’s proposal demonstrates why moving one’s money to local institutions is wise from an economic development standpoint. That is, if their local banks agree to the deal.
Local banks, though cuddlier in appearance than megabanks, still need to turn a profit. And while a new account with a big client is attractive to any business, taking on their cash with such stringent preconditions might make them balk. The bill’s passing appears to be a foregone conclusion. Whether it is successful or not depends largely on the few local qualifying banks.