Boston on Wednesday joined a growing list of cities nationwide by requiring banks to prove they are investing in neighborhoods and small businesses if they want to handle city accounts and deposits.
The ordinance goes into effect immediately.
The City Council, by a 10-to-3 vote, overrode an earlier veto by Mayor Thomas M. Menino.
Wednesday’s vote, one of the last before the Nov. 5 elections, means that banks wanting to provide payroll services, process payments, and hold Boston’s deposits will have to show they are helping low- and moderate-income neighborhoods throughout the city.
“We’re going to invest with a bank that invests most in our neighborhoods,” said Councilor at Large Felix G. Arroyo, a sponsor of the ordinance.
Cities including Los Angeles and New York City passed similar legislation after the financial crisis and revelations about questionable mortgage and foreclosure practices by banks.
Still, it’s unclear whether Boston’s new rules are more symbolic than substantive, since they are unlikely to affect the city’s primary contract for banking services. Boston signed a three-year contract with Providence-based RBS Citizens Bank this summer. It holds as much as $700 million of the city’s deposits at any one time, said Meredith Weenick, the city’s chief financial officer.
Under the contract, the city forgoes interest payments on deposits for services such as payroll, credit card payment processing, and bill payments.
The city occasionally receives requests from smaller banks for less than $5 million of Boston’s deposits on a short-term basis as capital to make loans, Weenick said. Those banks would have to provide community investment data, she said.
Citizens Bank has provided such information in other cities where it does business, said Jim Hughes, a spokesman.
The bank funds community development projects throughout its service territory, he said.Deirdre Fernandes
can be reached at firstname.lastname@example.org. Follow her on Twitter @fernandesglobe.