Ronald D. Paul is on a mission. The chief executive of Bethesda-based EagleBank is leading an effort to persuade local municipalities to hand over more of their deposits to community banks. First stop: D.C. Council.

A public hearing was held earlier this month by the Council Committee on Public Services and Consumer Affairs on legislation supporting Paul’s campaign.

Twelve of the 13 council members in late December co-introduced a bill directing the D.C. chief financial officer to boost the amount of city funds deposited in banks with $250 million to $5 billion in assets and at least five branches in the District.

Participating banks must make loans to District-based small businesses totaling at least 200 percent of the deposited funds. Loans must be made within a year of the city’s commitment, and cannot exceed $5 million for commercial real estate or $3 million for commercial loans.

“Community banks are active in giving loans to small businesses, but there seems to be a disconnect with local governments taking real estate and income taxes that people pay and putting them in national banks that aren’t putting money back into the community,” Paul said in an interview.

Ronald Paul, chief executive of EagleBank. (Jeffrey MacMillan/Capital Business)

A higher amount of core deposits would give community banks more cash to increase loan origination. Paul stressed that the campaign is geared at helping the entire community of small banks, not just his.

“Whatever amount EagleBank gets from this is immaterial to our earnings per share,” he said. “I know all the cynics are saying, ‘What’s in it for you?’ We calculated that if Eagle gets $30 million in deposits, it would be less than one penny per share.”

As it stands, EagleBank, with $2.3 billion in total deposits, holds $20 million of the District’s deposits and investments, according to data from the office of the D.C. chief financial officer.

District treasurer Lasana Mack testified at the hearing that the city’s portfolio of deposits and investments totaled $2.3 billion with nearly 40 financial institutions. Wells Fargo holds the largest amount of deposits of any bank with $397.7 million, followed by M&T Bank with $266.8 million.

Wells Fargo spokesperson Michael McCoy contended that, nationally, the bank has “loaned more money to America’s small businesses than any other bank for nine consecutive years.”

“In 2011, we extended $13.9 billion in new loan commitments to small businesses, up 8 percent from 2010,” he said.

Mack, the D.C. treasurer, testified that the city has existing statutes on placing District funds in banks with less than $550 million in total assets located in the District. The initiative, he said, has resulted in the placement of roughly $100 million of city money with area banks, including Bank of Georgetown and Congressional Bank.

While Mack supports the goals of the legislation, he takes issue with some of its parameters. He is against setting asset limits, other than the existing rule that the city cannot deposit more than 25 percent of an institution’s total assets. Mack also feels the five-branch requirement would exclude most small banks.

The treasurer noted that his office cannot deposit larger amounts of money for long periods of time with any institution, a limitation that could derail the objectives of the bill.

“We need liquid funds throughout the fiscal year, and available cash balances get low at certain times of year,” he said in an e-mail. “This is why there are large amounts [of money] in various money market funds, a vehicle that allows us to safekeep the District’s assets, maintain liquidity to handle our on-going operating cash needs and earn as much interest income as we can for the city.”

“Because of the size and complexity of the District’s financial operations, small banks typically cannot service some of our needs,” he added.

Limited service capabilities at small banks also concerns Montgomery County budget director Joseph Beach. He said the county has a contract to deposit more than 90 percent of its funds with PNC Bank because the institution is big enough to offer services, such as vendor payments and lock-box services.

Still, Beach said the county is in discussions with community bankers, including Paul, to identify short-term investments, such as certificates of deposit, that can be placed with smaller institutions.

“We’re trying to identify something that addresses local investment, but also meets our own needs for liquidity and return,” he said.

Paul recognizes some limitations community banks may face in servicing municipalities seeking investment management or certain forms of bond financing. Which is why he is not asking local governments to divest from large banks, just for them to allocate more to community banks.

“As long as those community banks are required to demonstrate that they are putting their money back into community loans, a substantial amount of [government funds] should be placed with them,” he said.

The council is currently debating the fine points of the legislations, according to a spokesman from the Public Services committee.