Washington-area bankers have lost an important first round in their fight to block competitors from opening new banks in the District.
Mayor Marion Barry yesterday told the bankers that he will not seek a court order to bar Cranston Securities Co. from opening a locally chartered D.C. bank. The mayor's May 27 letter was delivered yesterday.
In addition, the Federal Deposit Insurance Corp. has rejected a request by Washington-area bankers to hold public hearings on Cranston's application for federal deposit insurance, banking sources said. Such hearings could have delayed for months a decision on the application.
The FDIC would not comment except to say that no decision is official until the agency sends a letter to the bankers and that no such letter has been sent.
The Greater Washington Financial Institutions Association, which represents 26 financial institutions in the area, made the requests to the mayor and the FDIC in April, shortly after Cranston applied for federal deposit insurance.
Denial of the requests does not ensure that Cranston eventually will open a bank here, but it eliminates several hurdles local bankers had hoped to put in the way.
Cranston Securities, which started in Columbus, Ohio, but now is based in the District, underwrites and sells government securities. It has major offices in Los Angeles, Columbus and the District. The proposed bank, Cranston Bank, would be owned by the investors that now own the securities company.
Cranston is one of 11 applicants seeking a local D.C. bank charter, which they believe will allow them to sell a greater variety of financial products than federal or most state bank charters permit.
Eight of the 11 applicants, including Cranston, have been given preliminary federal approval to open a locally chartered D.C. bank. Only Cranston, however, has taken the next step of applying for federal deposit insurance, which it needs to open its doors.
Local bankers say that if they are successful in challenging Cranston, they will have a good chance of preventing the other applicants from opening banks.
"The mayor's letter is an attempt to retroactively rationalize the illegal charters because of defects in the local banking laws," said Jack Pollock, president of the bankers association.
"The mayor has gotten bad advice. The legal reasoning is flawed and will not hold up in court," Pollock said. "This is nowhere near over. This was just step one."
District officials disagree.
"We think the applications are valid. The District government has been saying this all along," James T. Pitts, acting general council for the District's office of banking.
Lawyers for Cranston had no comment.
The 11 applied for local charters in the fall of 1985 and spring of 1986, before a new D.C. law took effect. Under the old law, locally chartered District banks got a banking license from the Office of the Comptroller, the federal agency that charters national banks and, until last April, locally chartered banks in the District.