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KC hopes to bring banking into distressed neighborhoods, but will banks play along?

A vacant house in southeast Kansas City sits in one of the ZIP codes with distressed properties in which the city hopes to leverage more banking investments with a socially responsible banking ordinance.
A vacant house in southeast Kansas City sits in one of the ZIP codes with distressed properties in which the city hopes to leverage more banking investments with a socially responsible banking ordinance. rsugg@kcstar.com

The city knows it’s taking some risk as it asks banks for bids on handling the city’s banking business while it hopes to also compel more investment in poorer neighborhoods.

Mystery waits as the city will learn if the biggest lenders are willing to display socially responsible investment in aid of economically distressed neighborhoods. Being the bank for the city’s $1.6 billion annual budget can bring more than $300,000 in fees. That gives the city a sizable bargaining chip.

It’s the banks’ move now.

A request for proposals is going out to banks by early May to seek their bids. This time, the city wants them to list specific investments in distressed ZIP codes and commit to an annual report to the city on their efforts in socially responsible banking.

In the past when the city has gone through the RFP process, its finance staff has held a pre-bid meeting with interested banks, Kansas City Finance Director Randy Landes told the City Council’s Finance and Governance Committee.

Under normal circumstances, Landes said, those meetings have him speaking to a group of “men in suits with their arms crossed” who prefer to ask no questions.

“This time,” Landes said, “there might be some discussion.”

For now though, the city doesn’t know how the interested banks will respond to the city’s attempt at getting them to lend more in the central city. The Star has made inquiries to some of the major banks and not received any comment.

City Councilwoman Alissia Canady, who along with Legal Aid of Western Missouri has been advocating for the stronger leverage, believes the city is striking the right balance with banks.

“The pre-bid conferences will give us a sense of who’s willing and not willing,” she said.

The compromise proposal from the advocates doesn’t require investment actions from banks to qualify, but invites them to self-report on their activity in the specified ZIP codes.

Many cities have already established socially responsible banking resolutions or ordinances that go further. New York’s ordinance, which required certain bank performance, has been challenged in court for overstepping into the authority of federal regulators.

Kansas City’s process stops short of requiring action from banks, Canady said. It is meant to create “a level of transparency” as banks work with the city in taking reasonable risks in aiding distressed neighborhoods.

“If they can’t do it,” she said, “at least we have a conversation on why they can’t do what the people want.”

The City Council committee is also working toward creating a socially responsible banking ordinance that will establish the same parameters for city business in the future.

Finance and Governance Committee chairman Scott Wagner said he expects to submit an ordinance by the end of the month that mirrors the language in the RFP.

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