"The city, and myself as city treasurer, have a responsibility and commitment to assist those banks that contribute to the community," said Rittenberg. "By placing deposits with those banks, I have an expectation that this money will increase the amount for new loans in the community. . . . If, in fact, I realize my greatest expectation of getting (most of the estimated 30 Los Angeles-area minority owned banks and S&Ls) involved, it is hard for me to foresee that I would ever be committed to more than $20 million."
Most minority banks in California are Chinese-American or Korean-American owned. There are only a handful of black- or Latino-owned banks and S&Ls in the state.
Rittenberg said there is a strong legal basis for his policy, even if there was no direction from the mayor or City Council.
Under state laws, amended in 1986, municipal treasurers are no longer required to make investment decisions based on interest rates alone. The law was changed to require treasurers to invest with the objective of realizing "maximum return consistent with prudent financial management."
Rittenberg said: "I have deemed that phrase . . . to mean 'reasonably competitive.' . . . Therefore I feel legally justified" in giving special treatment to minority banks.
Other public treasurers contacted by The Times said Rittenberg's policies are exceptional.
State Treasurer Thomas Hayes said that while he encourages minority firms to compete for state deposits--and even takes out advertisements in the Wall Street Journal to seek them out--he requires them to offer as good a deal for the state as any large bank.
"We won't accept less" interest or security, Hayes said. As a result, he said, the state places few deposits with minority banks.
Pierre Lorenger, deputy administrator for finance at the Los Angeles Community Redevelopment Agency, also attempts to do business with minority and locally owned banks as much as possible. Lorenger said his strategy is to help business within the communities under redevelopment.
"It can be a significant benefit to the community," Lorenger said. "We do want minority banks to be as competitive as the others. . . . We try to negotiate with them to make them as competitive as possible."
Mary Turner, treasurer of the city of Anaheim and past president of the Municipal Treasurers Assn. of the United States and Canada, said these kinds of arrangements are unusual.
"Social factors should be left out of a prudent policy," Turner said. The only factors that are necessary, she said, are "safety, liquidity and yield. . . . If it's a sound financial institution, the names (of the owners) do not matter to me."
Turner said the actual amount in Rittenberg's program is not important. "You need to make a prudent decision, even if it's just $100,000." Turner said the most important guideline for a treasurer is to remember, "I have to answer to the taxpayers."