Wednesday, February 28, 2007

Key in distress, and here comes Cleveland to the rescue

For banks, it pays off to reinvest in the city--As you saw a few days ago, Richard Cordray began taking KeyBank to task for putting its interests ahead of those of the rest of us. Well, lo and behold, here comes Key's champion to the rescue, taking money out of the other banks and shifting it over to KeyBank.

Cleveland stripped millions of dollars in deposits from National City and Charter One banks on Tuesday, citing the lenders for not doing enough to help city residents and businesses.

I wonder how those "city-assigned" rankings were determined. From the article, it appears that a few other people are wondering that, too. I wish Sharon Dumas, the finance director for the city, were more forthcoming with details. For instance, I think bank ratings and overall financials would play a huge part in the selection of a place for our community deposits, but I don't see that mentioned anywhere. One of the criteria, having a lot of branches in the city, might be a sign of bad management and too much overhead, for instance, and I haven't noticed the rates at KeyBank on consumer loans being any more competitive than those anywhere else. Did they identify and then count in the check-cashing storefronts with relationships to KeyCorp, and assess a penalty for parasitic activity?

Also, where is the mention of foreclosure rates and amounts here? I know Key has moved aggressively to cover its own assets in our neighborhood. Is there a foreclosure offset or penalty calculated in?

Is there any talk of what interest rate the banks will pay the city? Are our government employees here, Sharon Dumas and Ken Silliman, acting in the best interest of their fellow citizens if they don't try to maximize earnings? I know of common opportunities where plain old deposit money earns between 4.5% and 5%, yet all I see here is the use of some vague "profit" estimate, where each bank makes 3.5 cents profit per hundred dollars of deposits. First of all, what does this mean? Why are we talking about what the bank makes? Shouldn't we be talking about what the city makes? Quickly, $111,000,000 times the average of say, 4.75% is $5,272,500.

The biggest banks, like those who hold Cleveland's money, made about 3.5 cents profit on every $100 of deposits in 2006, according to data from the Federal Deposit Insurance Corp., which regulates them.

Is there talk anywhere else of the deposit insurance, the FDIC coverage, available per account? Again, I know of a common opportunity where the FDIC coverage is $1,200,000 per registration, but has anybody looked into that, in these times when banks earnings are down and they're straining under a heavy load? Is this a time when we should be consolidating our city money in one place, or is it a time when we should be spreading it out more?

Are we doing the right things with our city money, for the right reasons, for the right people?

Oops--almost forgot. Do you think one of the litmus tests could be how many bank executives you find in the city after the sun goes down?

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