City Councilman James Kenney on Thursday introduced a bill to ban Philadelphia from depositing funds in two international banks, Bank of America and Citigroup.
The bill would amend a portion of the Philadelphia Code titled "City Funds - Deposits, Investments, Disbursements" and would cut ties with the two banks as deposit institutions.
"Based on what these banks have done with swaps and misleading investors, why should we have any city deposits there?" he asked. "We shouldn't be doing business with our financial enemies."
In July 2013, the city filed suit in U.S. District Court against nine major banks, including Bank of America and Citigroup, in connection with their manipulation of the London Interbank Offered Rate (LIBOR), which artificially suppressed the city's returns on interest-rate swap agreements.
According to Kenney's bill, municipal entities such as Philadelphia "were paid lower amounts during the life of their swaps, and they were subjected to huge - and sometimes devastating - financial penalties when they terminated the investments, which were artificially inflated by defendants' misconduct."
Citigroup and Bank of America "are the two worst actors in the whole game," Kenney said. "To park citizen money in those banks while we're in a bad-swaps deal seems stupid."
His legislative aide, James Engler, added that the city should not "deposit or invest taxpayer funds" in banks "that have conspired to manipulate rates and defraud our institutions."
The bill does not affect other types of business with the banks.
After introducing the bill before Council on Thursday, Kenney said, "Now it will go to finance committee for discussion and then for a hearing."
A spokesman for Citigroup declined to comment.
A spokeswoman for Bank of America said it had not received "any correspondence from the City of Philadelphia relating to this ordinance."
As part of its federal lawsuit, Philadelphia is seeking damages for what it called "naked price-fixing" of rate-swap agreements that municipalities use to hedge borrowing costs. Also named in the complaint are Barclays Bank, Credit Suisse Group, Deutsche Bank, JPMorgan Chase, Royal Bank of Canada, Royal Bank of Scotland, and UBS.
Pursuant to its charter, the city treasury is authorized to deposit funds in the following banks or institutions besides Citigroup and Bank of America: Wells Fargo Bank; PNC Bank; United Bank of Philadelphia; TD Bank; Citizens Bank; Republic First Bank; Bank of New York Mellon; and U.S. Bank.
Currently, Engler estimated, the city treasurer has about $6 million in funds deposited in Bank of America and contracts with Citigroup for payment cards.
Kenney's measure is similar to one passed in 2012 by Oakland, Calif., which cut ties with Goldman Sachs because of losses from an interest-rate swap with the investment bank. The city council there barred Goldman from future city business.
Other local governments, including Baltimore and San Diego and Sacramento Counties in California, have filed similar suits against the banks.