Banks Tread with Care as Race for Campaign Funds Heats Up

By Schulz, Matt | American Banker, May 2, 1996 | Go to article overview

Banks Tread with Care as Race for Campaign Funds Heats Up


Schulz, Matt, American Banker


As Republicans and Democrats search for campaign money in this presidential election year, banks are tip-toeing through a mine field of rules on contributions.

In many ways, banks are no different from other companies with respect to political contributions. Federal law says banks can't draw from their own coffers for contribution money, use company time and facilities to organize campaign events, or force their employees to support a politician.

Banks can't even offer a political hopeful loan terms more favorable than those available to another person in the same financial situation.

The penalty for even a tiny slip: huge fines, criminal prosecution, and a damaged reputation.

Most bankers said these rules haven't caused major compliance headaches. But with political fund-raising drives hitting high gear as a summer of national conventions approaches, compliance officers said bankers need to be cautious.

"We handle it like we do other outside activities," said Kate Barr, vice president and compliance officer at Riverside Bank, Minneapolis. "We tell (employees) not to mix business with personal things.

"It's the same as if we're being asked to give to something like the March of Dimes Walk-a-Thon. We have to make sure not to put pressure on employees to contribute."

They must also be careful not to give candidates breaks on loan terms. Politicians often spend thousands or even millions of their own dollars to finance their runs, but some need loans from banks to boost their campaign's bottom line.

Loans to the candidate must be given at the normal interest rate for any borrower in similar financial circumstances, with all terms disclosed in a written agreement. It also must have a reasonable repayment period, and should be secured to ensure that the bank is not making a contribution in disguise.

The Federal Election Commission toughened the rules after former Sen. John Glenn of Ohio failed to repay more than half of the $2 million borrowed from four Ohio banks in his unsuccessful 1984 campaign for the Democratic nomination.

"It has to be just like lending to any sort of borrower," said Tige Savage, a spokesman for Washington-based Riggs National Bank. "You've got to know the possible ramifications of what you do."

The rules also apply to checking accounts and other products. Candidates must receive the same terms as any other customer, according to Kenneth A. Gross, a partner at the Washington law firm of Skadden, Arps, Slate, Meagher & Flom. For example, a candidate only can get overdraft protection if the bank offers the service to everyone.

The consequences of noncompliance can be severe, Mr. Gross said. An illegal loan or contribution can cost $100,000 or more in fines. Banks also could face criminal charges, he said, since the election commission can refer cases to the Department of Justice for further investigation.

But lending isn't the most common way for bankers to get involved in political races. Most of banks' influence comes from political action committees, or PACs - a collection of money donated by people to support candidates for office.

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Banks Tread with Care as Race for Campaign Funds Heats Up
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