that might be something that we can look and learn from as well. supervisor avalos: supervisor mar. supervisor mar: thank you for your work in making banking more grass roots and down to earth for people in our community. i also support a regional-public bank as well. i wanted to ask a question about the current banking arrangement for the city. we currently bank with three banks, bank of america, wells fargo, and union bank. given the occupy sf and wall street protests happening around the world, there is a lot of focus on the lack of accountability on those three banks at least. how did we come to the decision to go with those three banks? what flexibility is there to make changes in that arrangement? >> a lot of where our accounts

set is due to history. technically, these 133 accounts are spread across three banks, but the overwhelming majority are with bank of america, simply because that is the relationship the city has had the longest. your question about what we can do about reing gauging and thinking about changing or completely replacing any of our current relationships, that is what this rfp is about. it is not that easy to move 133 bank accounts. if you think about how often we think about moving our accounts from one bank to another, it is not something that we do every week or even every year. similarly, it is a lot of work to set up these accounts, make sure that the millions of transactions that we have are being funneled correctly. that is the opportunity we have this -- with this rfp.

i think the timing is opportune for us because we have the opportunity to bring the public, city departments, and any other interested parties, so we can get the best outcome. supervisor avalos: you mentioned bank of america is the predominant bank that we do transactions with. he said all that money is swept every day into a concentration account. where is that concentration account? what institution is that with? >> my guess would be bank of america, our primary bank. i would have to see. but that would be something that we could consider changing as part of the rfp process. that would be reviewed by our portfolio management team, and they look at the funds to decide what length of time they may stay in the fund or get moved into a more profitable and perhaps even safer investment,

like u.s. treasurys, or something like that, depending on the cash flow of the city. receiving some sort of an interest-rate versus what we have. supervisor avalos: versus what we have now? >> all interest rates these days are low, i can guarantee that. supervisor avalos: in the amount of money in the concentration account fluctuates from day to day. generally, if we were to see this on a graph, what would it look like? >> during property tax season when there are literally hundreds of millions of dollars coming in, sometimes in a given week or day, obviously, that account will top out quickly. you want to make sure that we are doing delivered investment. i do not have an answer but we can get you that information. supervisor avalos: the cost to

the city to contract with b of a, wells fargo, union bank, could you comment on the cost of doing the transactions? >> all these banking services discussed, the 133 accounts, transactions through there, credit cards, it is about $2.7 million a year. what is interesting about that, as i said earlier -- almost two- thirds of that cost is these credit card transaction fees. if you take that out of the mix, because that is something we are going to have to pay, because any time somebody uses a credit card, just like a retailer, we have to pay a fee. if you take that out of the mix, the amount that we pay to the banks for the account services that i mentioned, transactions,

accounting of those transactions, money movement, electronic transfers, all of that is a little over a million dollars a year. our goal is to reduce that cost. as we make these processes more efficient and offer the chance for various institutions to compete with each other, our hope is it would drive prices lower, which will benefit us. supervisor avalos: that million dollars that they get is offset by -- they receive money from us on a day-to-day basis that goes into their accounts. that is another benefit that they get. i am just thinking about leveraging. his $1 million a lot to leverage a financial institution to break away with their traditional practices that have not been supporting homeowners, have not been aggressive enough in supporting small businesses? what has been good is giving to

philanthropy and organizations. however, we have a significant amount of money -- we will hear from the legislative analyst on how much per bank -- but that is our leverage point. it is not how much we pay them, but the amount that goes through the bank. >> i would say it would be both, because of our sweep activity. we do not leave balances in those accounts, so they are not really sitting on a large deposit of money that they are able to earn any money on. so most of what we're giving them it is a fee for service- kind of relationship where they do the transaction, we pay them for that transaction. our goal is to pay them less, going forward. even so, that is an important piece of business for them. the city and county of san francisco is a valuable piece of business for them to have. i think we can find leverage of

various types, but i cannot say right now the magnitude of them. supervisor avalos: i appreciate your creek -- presentation, you being here. >> greg from our office is here. thank you for your attention, i look forward to working on it further. supervisor avalos: next we have the legislative analyst part of the presentation. >> and good morning, members of the committee.

i will make a presentation on our report on this topic community-supported banking options that we prepared for your office, chair avalos. i do have some slides and i guess there is a technical question here -- [inaudible] the request from your office was to research options in ways which the city could invest its funds that now go to private banks and more activities that are considered community- supported, including dollars for local small businesses, single family homeowners, community development efforts.

second, you asked if we would report on municipal banking options, including private banks, credit unions, community development with banks, public banking [inaudible] this slide shows the framework of types of financial institution that we are considering for the analysis. the first is commercial banks. and that is what we have been talking about for the past few minutes. these are institutions currently used by the city. in many cases, these private banks to offer some community- supported services as part of their business. not a requirement, but most large banks, particularly, have some sort of community- supportive activity.

second, credit unions, non- profit organizations, cooperatives, owned and operated by their members. they provide the same services as larger banks but on a smaller scale generally. third is community development financial institutions. a major component of this being community development banks, which operate as bank but have a primary mission of serving communities that are traditionally underserved by financial institutions. to become a community development financial institutions such as a community development bank, one need to have status confirmed by the u.s. office of treasury. certain criteria that has to be met, and funds in these institutions have to be used for certain purposes and the community needs before they are classified as a community

development financial institution and to be eligible for federal funding that help support these activities. finally, publicly-owned banks. this would be a bank that provides all the same services as a private bank, but is owned by a public entity. just in terms of the scale of all these things, 237 commercial banks in california with assets of $1.8 billion at present. 431, almost double the number of commercial banks that are credit unions, but they are much smaller in scale. 209 $9 million in assets. community development financial institutions. we could not find a centralized list of all of them. what we did fine from the u.s. office of treasury, 17 were awarded treasury funds since the mid-1990s when the federal act was set up to a provide funding. on publicly-owned banks, there

is only one in the country, bank of north dakota, which you mentioned. i will add a footnote in doing this research, we found a number of states that are researching the possibility of creating their own bank and a number of municipalities around the country, and outside the u.s. i know the city of toronto has researched the topic as well. the current [inaudible] a lot of this has already been covered, so i will go quickly. three banks presently used by the city. bank of america being the largest, having most of the funds at present. there are also accounts with wells fargo and union bank. a multitude of banking needs. all the different accounts and different banks are engaged with

the city because there are so many names and different types of transactions that take place every day. we had information from the summer, 194 accounts. there are a lot of accounts flowing through the system. in terms of the bank accounts, the average monthly beginning balance is about $255 million each month. as the treasurer pointed out, money coming in and out, lots of transactions. by the end of the year, about $12 billion has been dispersed through the citibank account, including not only the city and county of san francisco, but also funds from the community college and school district. the regulatory framework, state law is obviously key in governing how the banking operations function.

then there are city investment policies on top of that. also, as has been discussed, the rfp is being prepared to review the current arrangements with banks and to entertain offers from others for banking service. that is scheduled to go out next year. in terms of regulation of the city possum bank. the acronym at the top is a term that keeps coming back in the review of the laws that govern this. safety liquidity in yields. safeguarding the principle. second, meeting liquidity needs of the jurisdiction.

third is achieving a return on the fund. regarding creation -- supervisor avalos: does every county have a treasurer? >> yes, i think that is true. there may be a difference in charter counties. i am pretty sure every county does. certainly most of them. regarding ms. ball banks there is also a provision in state law that an account may not give it credit to any person or corporation. that seemed to put a limit on the creation of a bank. we have consulted with the city's attorney's office who has that interpretation at least after an initial reading of this, a limitation on the creation of banks to the extent the law remains in place. then there are city investment policies. the first and primary one is here and it mirrors the state

law and the same priorities of safety, liquidity, and yield. in addition to those investment policies, the city also has other policies in place which do address the social environmental concerns. they are in addition to answer boardman to the three basic principles. as outlined here, on this line, they encourage investment by the city and entities that support community well-being through safe and environmentally safe practices, and encourage investment processes that offer banking products that serve all members of the community. entities that promote community economic development. the types of options you are interested in are consistent with social policy investment. again, does come after the safety liquidity deal requirements.

prior analysis pewee considered six options and -- prior analysis. we considered six options. first was investing in credit unions and or community development banks. so that some of the city money, instead of going to the three major financial institutions, would go to smaller institutions that make more investment in the community, and particularly, towards more committed to development efforts. second is expanding existing city programs, serving those functions. third was creating a community investment program that would provide funding towards that end. fourth was supporting efforts to establish a state bank. when we prepared this report, there was some legislation being considered that was working its way through the state legislature. since then, it has been vetoed by the governor. that was simply to set up a commission to study a state

bank. that is no longer in effect. five is creating a regional bank, and joining forces with other bay area municipalities, marshalling resources to create a public bank. six is creating a public bank that would be san francisco's own municipal bank. briefly, on each one, we have recommendations in the report on steps to take to pursue each option. they are not mutually exclusive, so there could be a combination of all of these that would address the goals and objectives you have outlined. the first is credit unions and our community development banks. again, these are already in place. -- and/or community development banks. the idea would be to take the funds and farm them out to these banks who are meeting the social policy objectives discussed.

the advantage of doing this approach is that organizations are in place, does not require changes in state law. the treasurer's office could make changes to put money into these institutions, and could do it very easily. credit unions missions is to serve its members. tens of the local organizations, non-profit, members of the governing board. they are considered advantageous generally to the member that the long that may not be able to get loans or credit from larger institutions. as far as community development banks, their mission is to serve the underserved, so they are exactly on point for the objectives you discussed. the disadvantages are they are only insured up to $250,000 per account, per institution. and they are limited, a limited number of these organizations

that are already in san francisco. supervisor avalos: this is the easiest thing to do, that we could do. $250,000 maximum per financial institution, credit unions or community development banks. how do we provide, how do we have that relationship of that maximum and still abide by safety, liquidity, and healed? have you analyzed that? is that an issue here? >> each institution would have to be analyzed in terms of the risk associated with it as well. any fund that were placed in those institutions would be guaranteed by the insurance program. assuming they met the criteria of the treasury tax collector's office that they are not a risky institution. supervisor avalos: we also have

language here that says in our state constitution that we cannot loan. does that mean that those mean those institutions cannot make loans? >> no, they can make loans. they would be like bank of america now, which has money in their account from the city, and they can loan that money out. it would be the same operation, just on a smaller scale. the second option that we present is expanding existing city programs. there are programs in place to help community development efforts. we mentioned a couple of city agencies. the office of economic and workforce development, the office of small business, the human rights commission have programs in place and address some of those concerns. the level of funding is the key question. the disadvantage is it would

require more funding to expand them. the have programs in place. perhaps they have dedicated funding already from outside sources and some city funding. but to expand them would require an additional appropriation. on the plus side, there is no need to change laws. the programs are in place and could be enhanced, subject to approval by the board of supervisors. two other programs highlighted, the kindergarten through college program is a public-private partnership were certain children of a certain age receive a $50 check to put into an account so they can be earning interest until the time they're able to go to college. and the bank on sf program. a third option that we presented is city funds for loan programs. this would be not creating a

bank but appropriating city money so that loans can be made to small businesses that can obtain credit from larger financial institutions or from homeowners who are attempting to get out of their foreclosures situation or community institutions that cannot receive loans from larger banks as well. the idea of this is that rather than creating a bank, create a program, appropriate city money that you can run out of an existing city agency -- supervisor avalos: it would be based on a certain amount of money inappropriate for that? >> yes, and on the extent to which loans are repaid, new revenue would be generated. it could be used for other loans as well. but it would still require an appropriation. and that would avoid this city law -- excuse me, state law

limitation in our interpretation so that funds could be loaned but it would not be operated as a bank. it would not be all city funds at risk. it would be appropriated in that way. supervisor avalos: and we already have examples of that? >> yes. i am is skipping 2 option 5. the last one was three. four, we're not including any longer because that was a state bank concept in which the government vetoed the legislation pertaining to that. our recommendation has been to endorse the legislation or put the city efforts behind supporting it. i will move on to the regional public bank option, option 5. this is an idea that has been promoted. there's an advocacy organization typically for public banking called the public

banking institute and has initiated contact with other bay area jurisdictions about this idea of creating a network of banks or a regional bank, involving as many jurisdictions as possible. the advantages are that there is an organization already working on it. costs and risks associated with creating a bank would be shared. it would drive the opportunity to access stable and lower-cost credit. by that, i mean that as a bank, the city or the banking entity would have access to low- interest loans through programs like the federal home loan bank that all the banks have access to now. they obtain the money for home loans that way and make those loans to homeowners but charge intake in a fee off the top. if the city were to create its own bank or join forces with others, it would have access to that sorts of funds, and there

would not be the fee in place in the same way that the banks' ter charged that now. on the disadvantaged side, this gets back to the state law question. so person in this option, whether it is this city alone or in conjunction with other jurisdictions, it would require a change in the state law prohibiting making loans from a public entity. also by joining forces with other organizations. policies and goals may be different for other cities or counties that may be part of the effort. that would have to be negotiated with the city of san francisco and the other entity. of course, the revenue generated would be shared with the other jurisdictions. so it would provide a new revenue source for all the entities involved for the city of san francisco. finally, the sixth option

pertains to the creation of a public bank that would be a san francisco-only public bank. some of the same concepts apply here. obviously the big advantage, the profits that the bank name -- make stay with the city. the bank will be able to access lower-cost credit and make that available. there's the possibility of the new revenue -- revenue stream to the extent profits are to marry did. that becomes a revenue stream for the city. and the city would have the policy goals. it would be a city decision alone into how the money would be used. on the disadvantaged side, there would be some risks associated with creating a new institution of this sort. there is only one in the country at this time, the bank of north dakota. it does require a change in the state law, so there would be some effort required by the city

to make that change or to facilitate that change occurring at the state level. there are startup and operational costs. cretan the bank of this skill is not a minor effort. so it would take some initial investment. although, because it is a business like opportunity and a depressed, it means return down the road. it takes cash and resources at the outset to get the enterprise going. there is a 10% capital reserve requirement that would apply, a federal reserve requirement that would apply to the city bank. that means some funds cannot be used for city operations or loans, as is true of all banks that currently do this, private banks and credit unions, etc. you mentioned the partnership bank model. i want to touch on that. the advantage and disadvantages

and what would need to be done apply in either case. the partnership bank, which is the model used by the bank of north dakota, is not too involved in the retail activity of the banks. they largely loans to smaller local banks, who then in turn do more of the retail operations. we understand the bank of north dakota does have some direct deposits and some retail customers as well, but it is a pretty small portion of their business. a little bit more on the bank of north dakota, how they're came to be just one in the country. it was started in 1919, part of the populist movement, and it was to make funds available to a lot of small towns and farm communities. those who were not able to access craddock through traditional banks. they're called a partnership bank, because they have about