California May Join States Mandating Deep Disclosure

LOS ANGELES - California banks that want to do business with state or local government agencies would be deluged with paperwork under terms of a bill recently introduced by a state legislator.

The proposal from Assemblyman Steve Peace, a Democrat from Chula Vista, would require extensive disclosures about minority lending and hiring by banks and thrifts.

The bill's chances in the state legislature are being taken seriously by bankers because of the national attention on inner-city lending resulting from the recent Los Angeles riots.

Dynamics Have Changed

California bankers managed to stop a similar bill in the state legislature last year, but the rioting "has changed the dynamics," said Gregory Wilhelm, director of government relations for the California Bankers Association.

The bankers' group does not officially oppose the bill but "has problems" with it, Mr. Wilhelm said. Bankers are trying to work with the author on revisions.

California would not be unique in tying business deals to minority lending. Twenty-one states and some municipalities already require banks to make some disclosures or maintain certain Community Reinvestment Act ratings to get state business, according to Robert Stumberg, associate director for policy at the Center for Policy Alternatives, Washington.

Most Rigorous Bill Yet

But the California proposal merits special attention.

"This would be the most sweeping legislation," said Mr. Stumberg.

If passed, the state law would require banks and thrifts to publish a breakdown of consumer and business loans by race and ethnic background, gender, and census tract. Banks would also have to tell the public about the race and gender of their top management and directors.

In addition, the bill calls for banks to disclose all philanthropic contributions and to provide a description of their contracts with businesses owned by minorities and women.

Incentive Plan

The bill also has incentives to "encourage" pension funds, foundations, churches, and government agencies to do business only with financial institutions that have "outstanding" or "satisfactory" ratings under the Community Reinvestment Act.

The bill would exempt financial institutions with less than $100 million in assets from its provisions.

A similar but less tough ordinance was passed in Los Angeles on March 18.

Although the state has only about $400 million in deposits placed at any one time, the proposed law could also affect the more lucrative business of underwriting municipal bonds and other securities.

What Happened in N.Y.

An estimate of deposits placed by local government agencies could not be obtained.

Some banks may decide the documentation isn't worth the state's business.

Indeed, six New York City banks recently decided not to seek business from the city because of a local ordinance that requires banks to submit rigorous records of their community investment activities.

In introducing the California bill in late May, Mr. Peace said: "At least part of the intense aggravation and hostility taken out on South Central Los Angeles recently - while it is to be condemned - is a result of the lack of opportunity and hope among that community's citizens."

Mr. Peace said disclosures by lenders "will help to revitalize our urban communities by encouraging financial institutions to provide greater access to credit and jobs."

The timetable for a vote on the bill, AB45X, is uncertain. It has to go through several committees before being voted on by the entire assembly. It would then need ratification by the state senate.

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