Austin Continues On With Too-Big-To-Fail Banks

This week the Austin City Council voted unanimously to move city banking from Bank of America to Chase, just three weeks after voting unanimously to investigate responsible banking options. What is clear now is that this move to Chase Bank was already decided even before the March 1st vote on the responsible banking resolution, since the city had sent out a request to 112 financial institutions in August 2011 and received exactly three replies – Bank of America, Wells Fargo, and Chase Bank – institutions that made good use of their bailout money to position themselves as collateralized enough to handle the city’s finances.

Since this move by the city was sparsely covered by the local news outlets (YNN, KUT), here’s a little of what you missed if you did not attend the March 22nd meeting:

The city’s Interim Chief Financial Officer Elaine Hart read from her four-page memo, reiterating Austin’s financial needs and how only the largest banks can provide for them. When questioned by Council Member Bill Spelman about whether the city’s contracts could be split between several smaller institutions, the response was no, because making sure that the financial arrangements were being followed by the banks would be a nightmare for city staff. There were, however, no concerns as to whether the contract with Chase Bank would be in the city’s best interest. The contract was awarded despite JPMorgan Chase’s settlement in July of last year with the Securities and Exchange Commission over the rigging of the municipal bond market. Chase has also settled lawsuits dealing with excessive overdraft fees, cheating veterans and defrauding the federal government, among other egregious activities. When questioned by Council Member Kathie Tovo as to whether the Chase contract could be limited to one year while the city gathered more information,  city staff responded that no bank would enter into a one-year contract, that the shortest contract could be 36 months, and that reopening the bidding would be a logistical nightmare for city staff.

And of course, there was the mention of those other cities – San Francisco, Berkeley, Seattle, Philadelphia, all with responsible banking resolutions, and all still tied to contracts with Bank of America or Wells Fargo. Since those cities couldn’t make the move, why should Austin try to change anything.

Several citizens spoke at the meeting, reminding the Council of Chase Bank’s horrible treatment of its customers and of its settlements with the federal government, not to mention the bailouts. But when Claire Hirschkind spoke, she noted that at least one credit union, Members’ Trust FSB, was interested in a contract with the city, but was never contacted. While not a local institution, it is a credit union that might have a better record with its clients than Chase Bank.

One of the more surreal moments was the discussion about which of the three finalists, now famous for ripping off their customers, including governments both federal and local, was best able to handle Austin’s finances for the lowest price. Chase was deemed the winner of that sweepstakes, having scored the highest on the city’s grading system.

So now Austin will bank with another too-big-to-fail institution for at least the next three years. While Occupy Austin and others tried to stop this fiasco from occurring, it is now incumbent on all of us to keep the pressure on the City Council, to push them to work with responsible banking institutions. The contract we are now stuck with has a two-year renewal option. Let’s make sure the City Council understands that this three-year contract is the most we will grudgingly accept.


UPDATE (March 26th):

Today a member of Occupy Austin’s Bank Action Committee spoke with Council Member Bill Spelman concerning the City of Austin’s vote awarding a banking contract to Chase Bank. The following statement/questions were sent to Mr. Spelman, indicating Occupy Austin’s continued work on this issue.

Thank you for taking a moment out of your breakfast time this morning to speak with me. While we are collecting information from various member trusts operated on behalf of local and regional credit unions, we want to make sure that you, your colleagues, and staff have a clear understanding of the questions we’d like answered. These questions are attached and pasted and the bottom of this message.

Our folks look forward to your response. Thanks again.
There are over 30 days left for the City Manager Office to examine the city’s banking contracts.  We are asking you to get answers to the following questions:

  •  Were you, or someone from your staff given a copy of the RFA issued in August of 2011? If so, we are asking you for a copy, as well as a list of the 112 banks it was distributed to.
  • What criteria were used to determine which banks would receive the RFA?
  • After multiple requests for information regarding city financial contracts dating from October to February, we were never told about the already-issued RFA. Why did members of City Council and staff withhold this information?
  • Why were responsible banking criteria like foreclosure rates, payday lending, etc not included in the RFA?
  • Has the contract with JP Morgan Chase already been signed?
  • What is the history of the city’s relationship with JP Morgan Chase? How many contracts have been signed between the City and JPMC, and what caused the city to change banks in previous years?
  • Why didn’t the Deputy Chief Financial Officers and the City Manager consider  extending the current depository contract with Bank of America for one year in order to reopen the RFA and include responsible banking criteria?
  • If the city signs with JPMC, are you willing to push the City Manager to leverage this new relationship by requiring that JPMC invest a certain percentage of the city’s assets in the local economy? Are you willing to push for a moratorium on foreclosures by JPMC in the Austin/Travis County area?





Austin’s Banking – Too Big to Fail?

On March 1st the Austin City Council charged City Manager Marc Ott with investigating the possibility of removing the city’s money from Bank of America and moving it to a local bank or credit union. They gave the him sixty days to complete the task. Now, a mere three weeks later the city manager has apparently completed his investigation and is ready to award a new banking contract.

But this is no victory for the citizens of Austin. The city’s financial office is suggesting that Austin move its money from too-big-to-fail Bank of America to too-big-to fail Chase Bank, and a vote will be taken (it’s agenda item #56) at the March 22nd City Council meeting. We now know that Austin had initiated a Request for Application in the Summer of 2011 because its five-year contract with Bank of America was coming to an end. So even before Occupy Wall Street or Occupy Austin had begun, before the generalized public outrage which led to the removal of more than $1.6 million from Austin branches of Wall Street banks and into local banks/credit unions, the city had started its search for a new banking contract. It appears that  city government is having a good laugh at the expense of Occupy Austin, all the way to the too-big-to-fail bank.

A memo from Austin’s Interim Chief Financial Officer notes that 112 Requests for Application were sent out in August and only three banks replied – Bank of America, Chase and Wells Fargo. It’s a good thing that BOA didn’t have the highest score on the RFAs or the city would have even more explaining to do. The memo notes that requests were sent to three  local banks. Those banks are not mentioned by name in the memo, but they apparently did not respond:

In October 2011, after discussing this issue with the City Council, staff began to informally assess the capabilities of alternative banks, such as credit unions to manage the city’s banking needs. This assessment began by evaluating the responses to the RFA, which detailed the City’s specific depository needs. The RFA was sent to three banks that can be considered regional/local. THE RFA was also published in the local Austin American Statesman. None of these three local/regional banks submitted an application to be considered for this contract. None of these three, nor any other financial institution that can be considered regional/local participated in the pre-bid opening that occurred on August 11, 2011. Staff can infer from receiving no responses from any regional/local bank that they were unable to m eet the requirements set out in the RFA.

It is true, as I noted in an earlier post on this subject, that credit unions would need to jump through some hoops in order to accept the city’s money. Section 701.32 of Title 12 of the Code of Federal Regulations  (Banks and Banking) notes:

b) Limitations. (1) Unless a greater amount has been approved by the Regional Director, the maximum amount of all public unit and nonmember shares shall not, at any given time, exceed 20% of the total shares of the federal credit union or $1.5 million, whichever is greater.

(2) Before accepting any public unit or nonmember shares in excess of 20% of total shares, the board of directors must adopt a specific written plan concerning the intended use of these shares and forward a copy of the plan to the Regional Director.

It includes details of the planning and reporting that needs to be done before a credit union can accept funds in excess of the limits described above. It’s a lot of work and in the pre-Occupy Wall Street era, probably too much work. But given the current public outrage over the complicity of these too-big-to-fail banks in the mortgage meltdown and ensuing financial crisis,  isn’t it possible that now some of the local banks or credit unions might be able to find a way to accommodate the city’s finances.

Please consider attending the March 22nd Austin City Council meeting and speaking out against this proposed move.

Austin’s First Steps Towards Divesting from Bank of America

On March 1st the Austin City Council voted unanimously to investigate what it will take to move its money from Bank of America to a local bank/credit union. When the vote was finally taken at 10:45 pm after testimony from half a dozen Austinites including several from Occupy Austin, the room erupted in cheers.  This move by the city is a response to activism by Occupy Austin and its Bank Action Committee which brought the egregious and criminal conduct of too-big-to-fail banks like Bank of America as well as the city’s relationship with BOA to the public via  move-your-money marches and petition drives.

As it was sparsely reported by a couple of news outlets (KUT Radio and YNN) the council tasked the City Manager to study how to accomplish the move and to report back in sixty days. So on May 1st we should have some idea of how the city will proceed.  In order to accomplish this move, the City of Austin and its future financial institution will have to navigate a jumble of state and federal rules and regulations

Here are some of the statutory issues Austin and its prospective credit union will have to work with:

The Texas Finance Code notes that credit unions can accept  municipal funds. But the National Credit Union Administration rules and regulations place a  limit on the amount of money a credit union can automatically take in  from public entities:

(b) Limitations. (1) Unless a greater amount has been approved by the Regional Director, the maximum amount of all public unit and nonmember shares shall not, at any given time, exceed 20% of the total shares of the federal credit union or $1.5 million, whichever is greater.

Any credit union responding to a Request for Proposal from the City of Austin will need to submit a plan as stipulated in section 701.32 of the NCUA rules and regulations (part of Title 12 of the Code of Federal Regulations).

The Texas Government Code lists the type of institutions that can accept public securities, and credit unions are not specifically mentioned, though the state Comptroller can designate institutions as “custodians”  as explained in section (iii) below:

Instead of depositing pledged securities with the comptroller, a depository may deposit them with a custodian.  The custodian may be the (i) Texas Treasury Safekeeping Trust Company, (ii) a state or national bank that has a capital stock and permanent surplus of not less than $5 million, is a state depository, and has been designated as a custodian by the comptroller, or (iii) a financial institution authorized to exercise fiduciary powers that has a capital stock and permanent surplus of not less than $5 million, has its main office, branch office, or a trust office in this state, and has been designated as a custodian by the comptroller.  For purposes of this subsection, “financial institution” has the meaning assigned by Section 201.101(1), Finance Code.  The comptroller may designate those custodial applicants that are acceptable and may reject those whose management or condition, in the opinion of the comptroller, do not warrant the placing of securities pledged by state depositories.

There are obviously some hoops to jump through in order for the Austin to move its money out of Bank of America and into a credit union, but judging from the response I got from an official at my credit union at the idea of doing business with the City of Austin, the interest is definitely there, and the obstacles are not insurmountable.

Please take action and let your local credit union/banking institution know how important it is to you that the city sever its financial relationship with Bank of America and request that they help facilitate the city’s divestment from a too-big-to-fail bank to a responsible local option.

Texas, Austin and Bank of America

In Texas banking news, while the state is expanding its relationship with Bank of America, the City of Austin is exploring the feasibility of severing its ties to the bank.

You would think that Bank of America’s recent mortgage fraud settlement with the state Attorneys General and its settlement of a discrimination lawsuit late last year might prompt one of the states involved in the fraud  settlement to avoid doing business with the bank. Despite the record fines imposed on the banks, these settlements are viewed as toothless to keep Bank of America and the other too-big-to-fail banks from repeating their fraudulent activity. But Texas is poised to deliver any number of its almost 400 thousand state employees to BOA by offering the TexPayCard, a debit card linked to the bank which would contain the employees’ paycheck on a monthly or bi-weekly basis. The state Comptroller’s Office no longer wants to issue checks and has turned to one of the banks implicated in serious mortgage fraud to manage state employees’  money through this pre-paid debit card.  Just the juxtaposition of Bank of America and debit cards should raise red flags with state officials; instead state agencies are now notifying their staff as in this week’s reminder from the Health and Human Services Commission:

Enrollment has begun for the TexPayCard program, which allows state employees to receive their pay on a prepaid payment card rather than by paper warrant or by direct deposit to a bank or credit union.

A picture of the debit card accompanies the flier describing this “service” which is billed as a convenience for employees who do not currently have direct deposit or even a bank account as a way to avoid check cashing fees. But it also being marketed to workers who currently have accounts with a financial institution:

While the card may appeal most to employees who receive their pay by warrant, the program also is available to employees who have direct deposit to a bank account.

Prominently missing on this graphic depiction of the TexPayCard is any mention of Bank of America. True, these cards aren’t necessarily ready, and they may yet be embossed with the bank’s name, that remains to be seen. The fees are listed on the back of the flier and include a $15 emergency cash transfer fee, $1.50 for use at non Bank of America ATM, and $3.50 for international ATM withdrawals, and 50 cents each time a transaction is declined at an ATM.

While the state is willing to overlook Bank of America’s dismal record, the City of Austin, under pressure from Occupy Austin and the 1.5 million dollars Austin-area residents have removed from the large mega-banks that tanked the economy, is considering the possibility of moving its money out of the bank. Agenda item #48 at the March 1st City Council meeting calls on  the Austin City Council to discuss and  vote on a resolution sponsored by Council members Morrison, Tovo and Mayor Leffingwell, to study how to move its funds:

WHEREAS, investment practices and subprime lending policies by major national banks led to a global downturn in the economy and influenced a massive wave of foreclosures throughout the country, including Austin; and

WHEREAS, foreclosures affect the stability of Austin’s neighborhoods and place strain on a student’s opportunity for academic success when families are forced to move throughout the school year; and

WHEREAS, it is in the interest of the City of Austin to ensure public funds are invested in financial institutions that support our local community; and

WHEREAS, the City of Austin has a long-standing tradition of supporting local businesses, which fosters sustainability of our economy; NOW THEREFORE


That the City Manager is directed evaluate and report back to the City Council within 60 days regarding the following:

1. The current status of the city’s depository contract, including information on renewal options and the timing for the solicitation process; and

2. Fiscal and operational impacts of terminating the current depository contract and contracting with an alternative local or regional bank, including the feasibility of a credit union; and

3. A comprehensive analysis of the capacity of alternative banks, such as credit unions, to maintain and manage the city’s banking needs.


The City Manager is directed to review the city’s current banking policies and make recommendations on changes to give preference to banks that support community reinvestment goals, such as the stabilization of the housing market, provision of loans to local homeowners and businesses, establishment of local branches in low- income communities, and opportunities for local employment.

Needless to say, a large presence at the March 1st  City Council meeting, or outside at City Hall Plaza at 1st and Lavaca, will go a long way towards moving the Austin City Council in the right direction. The Council meeting starts at 10 am. Please consider attending.