The District of Columbia government keeps most of its deposits at Bank of America, but that could change under a proposal the city council is mulling that would require the city to shift some funds to community banks.
According to a report in the Washington Business Journal, Councilman Jack Evans has introduced legislation that would require the city's chief financial officer to move some city deposits out of large banks and into community banks — as long as the recipients agree to lend out $2 for every $1 of city deposits they receive to local businesses.
In introducing the bill last week, Evans said that holding deposits at B of A is "of no value" to the city because those deposits are often loaned out elsewhere. "We have a number of local banks that, if we were to deposit our funds to our local banks, would then under this program relend that money…to our small businesses," he said.
Twelve of the city's 13 council members support Evans' bill, the Business Journal reported, so it stands a good chance of being passed.
Not all community banks would qualify for city funds, however. Under Evans' proposal, deposits would only be available to banks that have at least five branches in the city, but no more than $5 billion of total assets. Participating banks must also be well capitalized.
By that measure, only two D.C.-based banks, the $572 million-asset Bank of Georgetown and the $375 million-asset Industrial Bank, and two out-of-state banks, the $3.2 billion-asset Eagle Bancorp Inc. in Bethesda, Md., and the $769 million-asset Premier Bank Inc. in Huntington, W.Va., would be the eligible for the city funds.
Other state and local governments have steered deposits to local banks in an effort to stimulate lending. During the financial crisis in 2008, for example, Illinois' state treasurer shifted roughly $1 billion of deposits to community banks and credit unions.