The cities of Beaverton and Lake Oswego have launched programs this year to move public funds from state investment pools into certificates of deposit at local, civic-minded banks. The Oregon Bankers Association is also lobbying to change state policy to make it easier for small banks to accept money from public entities.
Such programs help cities earn bigger returns as local banks often offer better deposit pricing. Banks get lower-cost funding, which helps them manage the liability side of the balance sheet and fund loans when demand picks back up. The partnerships also create bonds between political leaders and bankers.
"We're trying to encourage people to buy local, spend local, and it just was a logical extension to say, 'Well let's bank local, too,' " said Denny Doyle, Beaverton's mayor.
The city invested about $1.7 million earlier this month in the local branches of seven Oregon financial institutions, including the $10.8 billion-asset Umpqua Holdings Corp. in Portland, the $2.5 billion-asset West Coast Bancorp in Lake Oswego, the $1.1 billion-asset Pacific Continental Corp. in Eugene and the $378 million-asset Columbia Commercial Bancorp in Hillsboro.
The initiative was part of a 10-point plan that city officials laid out last winter to help spur economic development in Beaverton.
The city transferred the money from its $70 million investment portfolio, of which about $40 million is held in the Oregon Local Government Investment Pool, in which banks may deposit funds and withdraw on short notice. It took money from the state pool to invest about $240,000 in 12-month CDs at each of the seven institutions, including three credit unions.
The state pool was paying an interest rate of only about 0.5%, and the banks beat that rate by at least 15 basis points — some by up to 70 basis points, said Patrick O'Claire, Beaverton's finance director. "So actually it will help our earnings interest a bit," O'Claire said.
The only criteria: The bank had to be based in Oregon and have branches in Beaverton. Officials also considered size and community involvement, Doyle said. Eight institutions were invited to participate, and all but one accepted.
"What's exciting about the banks here is all these folks are fairly active within the community in other ways so it's nice that we're able to partner with them and help them, because they do a lot of outreach for citizens here," Doyle said.
Cities outside Oregon have considered programs rewarding banks that are active in local communities. One example is Los Angeles, which adopted a requirement in March that public funds would be invested in banks that meet the city council's social responsibility objectives.
Mike Wallace, the principal associate for finance and development at the National League of Cities, said the movement is spreading elsewhere.
"I know a lot of mayors and local leaders are looking for financial institutions who first and foremost are good with the taxpayer's money," Wallace said. "But secondarily, it's those financial institutions that are good partners with the cities in which they do business, so this is a way to reward those."
Officials at the Oregon municipalities were hard-pressed to find other programs similar to what they were offering. "You typically look for models out there, but I honestly didn't find any before we started this program," said Jane Blackstone, the economic development manager in Lake Oswego.
That city launched its community bank deposit program in March, placing $200,000 at six local banks, including Umpqua, West Coast, the $173.7 million-asset Bank of Oswego, the $131.4 million-asset Northwest Bank and the $72.6 million-asset Pacific West Bank. The city also invested in an out-of-state bank, the $4.5 billion-asset Banner Corp. in Walla Walla, Wash., which has two branches in Lake Oswego.
