The chairman of a House banking oversight subcommittee called on the Federal Reserve Board yesterday to investigate the role Cleveland's largest bank may have played in that city's recent financial difficulties.
After meeting for almost an hour with Cleveland Mayor Dennis Kucinich and consumer advocate Ralph Nader, Rep. Benjamin Rosenthal (D.N.Y.) said the mayor "made a persuasive and articulate case" in alleging that Cleveland Trust Co. virtually "held up the city" by refusing to continue financing the city unless it sold its municipal power system to the local private utility.
Rosenthal said he would ask Fed Chairman G. William Miller to investigate whether the bank acted improperly because of its relationships -- through interlocking directorates and stock control -- with the private utility that would have profited by what Nader called "a distress sale" of the city-owned utility.
The municipal utility, referred to as Muny Light, supplies power to about 20 percent of Cleveland, while privately owned Cleveland Electric and Illuminating Power Co. (CEI) serves the remainder. Kucinich made a major election campaign issue out of keeping Muny publicly owned.
Rosenthal is head of the subcommittee on commerce, consumer and monetary affairs of the House Government Operations Committee, which has oversight powers over federal regulatory agencies.
Kucinich also met with Rep. Henry Reuss (D-Wis.), chairman of the House Banking, Finance and Urban Affairs Committee, and Rep. Fernand J. St Germain (D-R.I.), head of its subcommittee on financial institutions.
Both Reuss and St Germain said they were impressed with Kucinich's presentation, and asked the feisty and embattled mayor to supply St Germain's subcommittee with documentation of his charges. After reviewing the documents, St Germain said, he will decide whether to hold hearings.
"I've asked him for as much documentation as they have," St Germain said, "and to provide us with as clear a picture as possible on the structure of the financial institutions and any interlocks involved."
St Germain added that if the sharing of board members by the various companies involved is as extensive as Kucinich implied, "it could prove to be a serious matter."
Rosenthal, too, said he would call for congressional hearings if the evidence warranted.
"What is happening in Cleveland is fundamentally wrong and anti-demo-cratic," Kucinich said after his meetings. "The Cleveland Trust is trying to use its economic power to overthrow a city government. Hopefully, the assistance of Ralph Nader will bring this issue to national attention."
"The issue is basic," Nader said. "A major bank in Cleveland was not willing to settle for normal credit-worthiness standards in making a loan to the city. Cleveland Trust was basically determined to overreach and condition the rolling over of the notes on the sale of the Muny Light system to CEI at a fire-sale evaluation, which would provide a windfall to Cleveland Trust's investment in that utility."
Nader also pointed out that such a sale would end a large antitrust suit filed by the city and its Muny Light company against CEI for unfair pricing practices.
"The technical question," Nader said, "is whether the Cleveland Trust Co. violated fiduciary obligations under its charter authority and engaged in unlawful overreaching."
Cleveland Trust, which held $5 million of the defaulted $15 million city debt, has two of its directors on the board of directors of CEI, and according to recent news reports controls at least 1.8 percent of the utility's voting stock.