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Who Should Control the Community Development Bank? : Opportunity: Keep politics out of it and let the bank be a bank.

July 05, 1995|GIL RAY | Gil Ray is a partner at the law firm of O'Melveny & Myers and an initial incorporator of the Los Angeles Community Development Bank. and

Los Angeles is in the final stages of creating one of the most significant economic development programs our city has ever seen--the Los Angeles Community Development Bank. This bank will invest more than $1 billion over the next decade, infusing real working capital into job-creating enterprises in our city's low- and moderate-income areas. The initial funds for this public/private partnership are made possible by a $430-million investment by the federal government, and another $210 million by local banks.

When announcing the federal government's commitment to Los Angeles, Vice President Al Gore, said, "The bank will have an independent board of directors...It's non-governmental, let me emphasize that point."

Today, the City Council either will vote for an independent board of directors that is accountable to the public, or will vote to put the bank under their control.

Council control will require that all of the bank's lending decisions be made in public meetings. This will create opportunities for political influence, lobbying and pork-barrel considerations that only taint the integrity of the lending decisions. Council control will lengthen the time frame for processing loans, and it will allow the emotions of public hearings to influence lending decisions. That type of arrangement spells disaster for any bank.

History tells us that governmental intervention smothers these types of job-creating enterprises. Billions of government dollars have been invested throughout the years to create jobs, and most of these projects have failed because pork was more important than merit.

This bank's lending decisions must be made on merit, recognizing the challenges in making loans available in areas that have not traditionally had access to capital and the entrepreneurial nature of many of the community businesses seeking funds.

Its staff must include experienced banking executives. The 15-member board must be inclusive, representative of and accountable to the community. The bank must have a comprehensive business plan that clearly states the organization's goals, operating procedures and performance measures against which it will be judged.

While not involving itself in the bank's lending decisions, the City Council should have substantial oversight responsibility, including regular reporting by the bank to the City Council, regular auditing of the bank, the power to approve or reject the bank's business plan, and ability to pull the plug on the bank should it fail to perform in accordance with its goals.

Gore said it right when he said the bank should be independent and non-governmental. Quality lending decisions that will create jobs and help businesses succeed can be made only in this type of environment. The City Council must vote to let the bank be a bank.

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In May, the government gave Los Angeles a $430- million grant to fund an innovative nonprofit community development bank. By leveraging its resources through partnerships with existing lending institutions and nonprofit economic development corporations, the new bank is expected to have working capital of $1 billion with which to make modestly risky loans to businesses in the city's most disadvantaged areas. Today, the City Council will vote on who will oversee the bank's operations.

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