The role of banks in preventing the surge of Los Angeles bank owned homes will be tracked by the city so it can identify and reward banks which are helpful to residents. The city will also monitor how these banks are using their products such as small business loans and branches to serve distressed communities.
Banks that score high in preventing foreclosures, in providing loans to small businesses, in opening new branches in distressed communities and in helping neighborhoods while doing business will have priority in getting part of the almost $30 billion that the city has in its bank accounts and in pension fund accounts.
Richard Alarcon, the Democratic councilman who introduced the bill, said that the institutions that brought Americans into the crisis must be challenged to do something more for the people. The bill was unanimously passed by the city council in early March.
Although Philadelphia was the first city to monitor the activities of its banks, which it has been doing since 2003, Los Angeles will become the first city to force banks to do their part in helping cut down the number of bank owned homes in Los Angeles and helping the city recover from the downturn.
According to Dennis Santiago, CEO of Institutional Risk Analytics, cities now want their diminishing funds to be managed by banks giving back to their communities.
Under the legislation, Los Angeles banks will be required to submit an annual report detailing their community investments. According to Alarcon, the city needs to use its investment power and to tell banks that they need to do more than offering low interest rates.
City officials said that if banks help communities by offering loans to small businesses and by modifying distressed loans, more people can keep their homes, more businesses can survive and more people can keep their jobs.
Currently, Los Angeles is struggling from an unemployment rate of 13.7 percent, far above the national rate of 9.7 percent.
In response to the legislation, American Bankers Association vice president Robert Rowe said that ABA does not oppose the legislation, but banks need to balance their efforts to be competitive in the community and their need to do certain things which are economical and profitable.
In Philadelphia, the program of pressuring banks has been working. It is hoped that Los Angeles will also attain its goals for the program, which include the mitigation of Los Angeles bank owned homes.
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