The D.C. City Council voted last night to recommend to the U.S. comptroller of the currency that he delay action on the applications of 11 companies to start new banks in the District until they comply with strict new community investment requirements.
By its action, the council adopted the approach taken by Mayor Marion Barry on the issue rather than a proposal by council member Charlene Drew Jarvis (D-Ward 4) that would have recommended outright denial of the controversial applications.
Some council members said privately that taking the mayor's position on the issue was an attempt to distance themselves politically from Jarvis -- chairman of the council's Housing and Economic Development Committee -- who is at the center of a federal investigation into payments by the New York banking giant Citicorp to her close political adviser Woodrow Boggs Jr.
"They [the council members] are queasy about dealing with her on the same issue on which she got burned," one member said.
Local bankers have lobbied the council heavily to oppose the applications for new local charters by the 11 companies, some of them large out-of-state bank holding companies.
The controversy arose when the 11 companies made their applications to the comptroller shortly before the April 11 effective date of city legislation that transferred authority to grant local banking charters from the comptroller to the District government.
That same legislation for the first time allowed bank holding companies outside an 11-state region to start doing business in the city by acquiring District banks, as long as each company agreed to make $50 million to $100 million in loans available in underserved areas of the city and other community investments.
The 11 companies sought to avoid the new investment rules by applying to the comptroller under a loophole in a 1901 law that gives the comptroller the authority to issue local bank charters in the District.
City officials are contending that, if approved by the comptroller, the new banks would not have to provide all the consumer services offered by local full-service banks or adhere to the new requirements imposed on nonregional banks to enter the market, and therefore would present unfair competition.
Most of 11 applicants want to start limited-service banks that would not offer checking accounts. Jarvis has complained that the applicants wish to establish "boutique" banks here that would serve only a small, affluent group of people.
The council's recomendation does not have any legal force, and the comptroller does not have to follow it. If he rejects the applications, the companies would have to reapply to the city under its new statute. The comptroller had extended the comment period on the applications to this Friday at the request of the city, and he is expected to take action on them in a matter of weeks.
Those making the applications include banking giants Chase Manhattan, Morgan Guaranty and Chemical and Bankers Trust as well as companies such as Greyhound Corp.
Jarvis also had planned to offer emergency legislation, circulated late Monday, to prohibit limited-service banks in the District. She had described the bill as an attempt to put teeth into the city's opposition to the applications.
But she said last night it was clear she did not have support on the council for passage, and she did not offer the measure. She told the council that she still plans to take it up in her committee.
A federal investigation began last month into whether Jarvis or Boggs used the influence of Jarvis' office to persuade banks to hire Boggs as a consultant. Officials from Citicorp have acknowledged paying Boggs $28,200 for consulting services.
Representatives of the four bank holding companies making applications for new charters said that Jarvis directed them to meet with Boggs to discuss how to win council support of the effort.
Jarvis has denied any wrongdoing and has charged that the lawyers for the 11 applicants have stirred up the Boggs controversy in an attempt to get her to back off on her opposition to them.
Other council sources, however, say they believe the reverse is true -- that Jarvis blamed the company officials for revealing the Boggs association and only then opposed the applications.
"The early signals were that Jarvis was going to come out in favor of the banks coming in," said one council source. "Then she thought that some of those big guys were the ones that dropped the dime on her and she went berserko."
The council recommendation to the comptroller was approved by voice vote with little discussion. Jarvis endorsed the approach in the end, even though she did not offer it. She explained later that she had not understood before yesterday that the mayor's position was a stronger statement than hers because of its insistence on the community investment.
Council member Frank Smith (D-Ward 1), who suggested adopting the mayor's position, said it would mean that the city would be speaking with "one voice" before the comptroller.