Los Angeles City Hall. Photo by John Schreiber.

A City Council committee began discussion Wednesday on making Los Angeles the first city in the nation with its own bank, which would give marijuana dispensary operators access to banking services.

The meeting was the first step in what was going to likely be a complicated process, and the committee focused on making a list of all the legal and financial questions it will need to get answered while also taking steps to define what the bank’s purpose would be.

“There are many different functions that an institution like this can serve and it is going to take us, frankly, a while to sort through all of this and figure out where are potential benefits, where are potential liabilities, how do we structure this in a way that has proper oversight and development and transparency, and there are probably issues that will come up that none of us have even thought of yet until we start to get into it,” said Councilman Paul Krekorian, chair of the Ad Hoc on Comprehensive Job Creation Plan Committee.

The committee was also told by representatives of the City Attorney’s Office and Office of the Chief Administrative Officer that they have not found any immediate reason legally why the city could not pursue the idea of opening its own bank.

Beverly Cook with the City Attorney’s Office advised the committee that for various reasons the bank would likely have to be an entity separate from the city and could not be part of a city department in order to be legal.

Krekorian pointed out that the Municipal Improvements Corporation of Los Angeles is a potential model the city could use when designing the bank.

MICLA is an outside nonprofit organization formed by the city in 1984 for the purpose of financing the acquisition of property though the issuance of bonds, and is a separate corporation but still a component unit of the city because the city confirms the governing board and its services are performed exclusively for the benefit of the city.

Krekorian pointed out the city has a “fair degree” of control over MICLA.

“You could move it out further to have an independent decision-making board that’s like our pension boards that operate independently of whatever we want. I think it’s a really important question that we are going to have to figure out based on what we want to accomplish,” Krekorian said.

Krekorian also listed the other top questions the committee will need to answer as it moves forward, including the specific purpose and restrictions on the activities of the bank, the nature and source of the capitalization backing up the bank, potential areas of concern for risk management and civil liabilities, and budgeting associated with the cost of opening and operating the bank.

Council President Herb Wesson proposed the creation of a public Bank of Los Angeles during a speech in July while calling on his fellow council members to help devise a legal cannabis industry in the city that works.

“We cannot bury our heads in the sand on the issue of recreational and medical cannabis legalization. Instead we must strive to reasonably regulate the emerging industry while creating opportunities for Angelenos,” Wesson said.

Wesson said the bank could be used to finance local entrepreneurs and affordable housing.

No city in America has its own bank, and the only public bank in the nation is the Bank of North Dakota, which was created in 1919. A motion Wesson introduced calling on the city to explore creating its own bank said the Bank of North Dakota is a successful model on how cities and states could use their banking needs to give back to the community.

Cannabis, which has been legal for medical purposes for more than two decades in California, will become legal for recreational use in 2018.

Owners of cannabis shops have trouble finding banks that will do business with them because the drug remains illegal at the federal level. Legalized cannabis could bring the city up to $100 million in new tax revenues per year, and the City Council is working on multiple motions and ordinances to create a legalized industry in the city that can be taxed and regulated.

Although it is not mentioned in the motion, the new bank could also help the city avoid entanglements with major financial institutions with which it is increasingly wary of doing business.

The city settled a lawsuit with Wells Fargo last year after some of the bank’s employees created more than 3.4 million unauthorized accounts as a way to meet aggressive sales goals set by management. The bank paid $50 million in civil penalties to the city of Los Angeles and $135 million to two federal agencies, and was ordered to provide restitution to affected customers.

The city does the majority of its banking with Wells Fargo through roughly 800 accounts, but the City Council is exploring cutting ties with Wells Fargo as it considers amending the city’s Responsible Banking Ordinance to require that banks doing business with the city adhere to responsible banking practices.

The Responsible Banking Ordinance was created in 2012 and requires banks doing business with the city to disclose information on loans and foreclosure activity.

–City News Service

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