The District of Columbia City Council is considering a bill that would deposit far more of the city's funds in local community banks to help stimulate economic growth.
The bill, introduced by Councilman Jack Evans, the chairman of the finance and revenue committee, would increase the share of the city's general fund permitted to be deposited in small banks without competitive bids from the current 1% to 10%.
The legislation also would boost the asset size of a bank that could qualify for no-bid deposits to $550 million, from $350 million.
The city has $1.5 billion to $2 billion of cash on deposit in various banks at any one time. Less than 5% of these funds are held by community banks, said Lasana Mack, the district's treasurer. The rest is deposited in branches of huge money-center banking companies like Bank of America Corp. and Wachovia Corp., both headquartered in North Carolina.
Jeff Coudriet, the committee clerk to Mr. Evans, said in an interview Tuesday that the bill's purpose is to "recirculate what's essentially our cash through our economy … on the theory that banks doing business here are more likely to lend to businesses here."
Though the bill was introduced in January, it was only recently voted out of committee, Mr. Coudriet said. He added that the council is expected to vote on it Dec. 11.
There is, however, a "tradeoff," he said.
"With the larger bank we're definitely going to get better interest rates, and better returns," he said.
Mr. Mack said in the "neighborhood of 10 banks" are receiving these funds from the district. He added that he is unaware of any opposition to the legislation; it should ultimately be signed into law next year, he said.
Lester Johnson, the president and chief executive of the $140 million-asset Colombo Bank in Rockville, Md., which has one branch in the district, said the legislation would greatly help smaller banks like his because it is getting increasingly difficulty to generate deposits.
"People are very interest rate conscious, so unless you're willing to pay pretty high rates it's very tough," he said. "So anything that's going to provide a low-cost source of funding for community banks is great."
Mr. Johnson said his bank is constantly looking to invest in the city, particularly in the lower-income sections of northeast and southeast D.C., "where a lot of large banks are not interested in going."
Michael P. Fitzgerald, the president and CEO of Bank of Georgetown in Washington, said, "It's helpful to us to have a bigger, better opportunity with the city."
Current law requires the city to conduct a bidding process once it goes over the 1% cap. Bidding would only be required after deposits reach 10% if the legislative proposal becomes law.
Mr. Fitzgerald said that his $157 million-asset bank could compete in the bidding process, "but we'd have to compete with the B of A's and the Wachovia's, and that's not always a fair competition."
Charlotte-based Wachovia has about 30 branches in the city.
Iris Cumberbatch, a Wachovia spokeswoman, said the bank is not opposed to the proposal "as long as they continue to follow a competitive bidding process.
"Our primary goal is, we do want to see these types of bids done in the light of day," she said.
Ms. Cumberbatch also said that Wachovia is "totally committed to lending in the communities where we do business."
"We are every bit as capable and committed to supporting businesses of all sizes in those communities as is any community bank," she said.
Larry DiRita, a spokesman for B of A, said the company, the largest retail bank in country, considers itself "a local bank in all the communities where we operate. And obviously we want as much of the local business as we can competitively achieve."
