The D.C. City Council's approval of a regional interstate banking bill Tuesday will be interpreted as a victory for District bankers but the Council's vote is far more meaningful than that. It was a reaffirmation of the city government's commitment to a partnership with the District's private sector.
The Council's action was, as one banker said, "a vote for good government."
"It created an open climate where we can form a stronger public-private sector partnership," observed the president of a District bank.
The stated purpose of that partnership, at least where District bankers are concerned, is to revitalize and improve economic conditions in designated areas of the city. Both sides made that commitment earlier this year when they agreed to fund a proposed Neighborhood Economic Development Corp.
The D.C. government has agreed to invest up to $10 million in the corporation and the D.C. Bankers Association has signed a commitment to put up 25 percent of the $5 million that will be raised through a private stock offering. The DCBA has pledged further to encourage other segments of the business community to invest in the corporation.
In the meantime, officials of two Virginia banks that have mergers pending with two D.C. banks have signed commitments supporting economic development in the District.
Nonetheless, Mayor Marion Barry and his aides are convinced that the only viable source of funds for economic development is the big money-center banks.
Barry, in the face of intense lobbying by New York's Citicorp, pushed for a so-called "trigger" that would have automatically opened the District to full interstate banking two years after enactment of the regional banking bill.
The mayor may veto the bill, as some of his aides have hinted, but he has little to gain from holding the bill hostage and further alienating the council and the business community.
To be sure, D.C. bankers have a vested interest in the passage of a regional reciprocal interstate banking bill. But avoiding competition on their turf is hardly the issue. In fact, two D.C. bank companies already have agreed to be taken over by Virginia companies. By agreeing to participate in a Southeast region banking pact, local bankers, in effect, are inviting competition through mergers and acquisitions.
Certainly, there is concern that big money-center banks will attempt to leapfrog into other states but the concern is over concentration rather than the swallowing up of smaller banks. The Council obviously believes that reciprocity, in which competition will be created by several large regional banks, will be of greater benefit to the the District's economy.
At the same time, the Council obviously isn't convinced that consumers will benefit from competition from big-money center banks. There is no evidence of that. Nor is there any evidence that Citicorp will change the face of H Street NE or Anacostia, its promises to spur economic development, notwithstanding.
The federal McFadden Act prohibits interstate branching by national banks and the Douglas amendment to the Bank Holding Company Act of 1956 bars bank-holding companies from buying a bank in another state unless the acquiring company is permitted to do so by that state.
The big money-center banks, with Citibank being the most aggressive, have made no secret of the fact that they oppose the banking laws and reciprocal agreements among states. In a determined bid to get around the bans against banking across state lines, Citicorp and others have used a variety of strategies to win the favor of state officials.
Representatives of Citicorp dangled the promise of an investment of $100 in mortgages and business development in the District in exchange for permission to open a bank here. The investment supposedly would create 2,000 permanent jobs for D.C. residents.
Citicorp is already a big mortgage and business lender here. One of its vice presidents said as much back in March. Citibank, we were told then, has $350 million in loans outstanding in the D.C. commercial real estate market. At the same time, it had $40 million in auto and residential mortgage loans outstanding in the District.
Approximately $100 million in outstanding lines of credit had been extended to D.C. corporations. Citicorp's Diners Club card business does $126 million annually with D.C. retailers. No figures for Citicorp's Choice Card were provided then but presumably, a sizeable chunk of that division's business is done here.
Citibank wants another source of deposits; plain and simple. Washington is at the center of one of the richest consumer markets in the United States.
The mayor and his aides seem convinced that only by permitting Citibank to come to Washington will the administration be able to fulfill its promise of revitalizing the H Street corrridor and other depressed areas of the city. New Yorkers would like to see sections of Harlem and the South Bronx revitalized. Has anyone inquired about Citicorp's commitment to revitalizing depressed areas of its headquarters city? How many long-term mortgages for low-cost homes has Citibank made in New York this year?