10/21/2010 07:22 pm ET Updated May 25, 2011

Moving the Economy Forward: Can the City of Los Angeles Pass Its Responsible Banking Ordinance?

Somewhere in the next 30 days, America will have a chance to attempt to open another path towards economic recovery. For the past year, Councilman Richard Alarcon has been leading the drive towards a municipal ordinance that directs his city to explore flexing its financial muscle to demand that bankers pay more than lip service to local community reinvesting.

It's no secret that America is hurting. We've got industrial capacity now arguably below the carrying capacity needed to sustain our people's lifestyle hopes. These issues are felt most acutely in our largest metropolitan economic zones, and -- as of now -- there really isn't a lot of focused public-private infrastructure aimed at bringing these dead zones back to life.

Alarcon and his colleagues on the L.A. City Council hope to change this. They've drafted an ordinance that takes bank measurement methods that have been working in other cities like Philadelphia and Cleveland and adapting them to ask bankers in Los Angeles a simple question, "How much are you really doing for the local economy?" And they are willing to put some teeth behind the question by calling for the city to favor future banking and financial contracts with banks that demonstrate "responsible banking practices" benefiting the economy and people of Los Angeles.

Some banks are wary. They don't want the intrusion into their world, particularly when many remain in survive-the-storm mode. But at the same time, banks large and small mean to husband resources so tightly that they now lend mostly to existing customers and are either putting all their reserves towards absorbing the losses of their burgeoning books of troubled assets or "diversifying their exposure" -- meaning sending money elsewhere -- as investments. Translation -- we see a country full of cheap money that "ordinary people" can't get to.

Just so you know, this subject of financial diversification has lately put me at odds with economists when I ask the silly question, "So tell me again why it's good for a community's money to abandon the community where it's needed so it can diversify and achieve a slightly better marginal return elsewhere? Why shouldn't a community have the policy mechanisms in place to encourage money to circulate locally as long as possible so as to maximize the concentration of the accelerator effect?" I apologize for the dive into the arcane, but it's really hard to argue for old approaches when the primary benefit is diminishing the balance-sheet pain on an industry that is going to consolidate anyway.

What I really find interesting though when I look through the more than 7,500 banks and 4,500 bank holding companies in this country, is that there are some banks that do stand to benefit from shifts in how a community's wealth is channeled. They won't actually say so outright that they'd jump on it -- that would reveal their strategic plans and designs about eating their kinsmen -- but if you think all banks are unified in their opposition to the potential of an emerging opportunity from municipal initiatives like this one from Los Angeles -- or future ones from other cities or collections of cities -- you're wrong. In a consolidating-industry scenario, the last banks standing will be the ones who figure out how to serve the future.

So the political question is, can the Los Angeles City Council see its way to passing this ordinance and setting an example to help open alternative paths to the future? I hope so. It's an important national question because for the last two years we've concentrated on solutions that we've discovered are at best temporary stimuli. They delay but do not substitute for finding sustainable solutions. Then again, common sense does say that fixing America was always a job that was too big for any single approach to solve; much less a broad sword relying on trickling that is the true limit that a federal government acting alone can do. It will likely take regional "invest-local" initiatives working in concert with a more cohesive federal process and, most important of all, the ingenuity of private industry and the people of America to get a job as large as repairing the United States economy done. The ordinance that Alarcon has carefully husbanded deserves consideration.

The City of Los Angeles needs to hear from ordinary people that this experiment is indeed vital to the National Interest. There will be a public hearing on the measure at L.A. City Hall on Oct. 26. I respectfully suggest that Councilman Alarcon's inbox could use your input. The person to contact in his office is,

Sarah Brennan, Policy Deputy

*Permission to publish contact information was confirmed prior to posting.