We believe that Illinois law would permit a county to collateralize its funds with privately-insured CDs from a qualifying issuer, but we strongly recommend reviewing the county treasurer’s investment policy to ensure that its guidelines authorize the use of this collateral.

The Illinois Public Funds Investment Act requires all public agencies to adopt written investment policies, including “guidelines regarding collateral requirements, if any, for the deposit of public funds.” The Act permits public agencies to accept CDs as collateral, but if the CDs are not fully insured by the FDIC or the National Credit Union Share Insurance Fund, they must be issued by a qualifying depository institution. To qualify, the issuing depository institution must be “rated within the 3 highest classifications established by at least one of the 2 standard rating services,” in addition to meeting a minimum asset size ($15 million) and a minimum capital to asset ratio (6% for a bank).

If the issuing bank meets all three of these requirements, we believe that the privately-insured CDs could qualify for public funds investments. However, the ultimate answer depends on the county’s investment policy, which should indicate what types of CDs are eligible collateral for its deposits. The fact that the CDs are insured by a private insurance fund may or may not be relevant, depending on the guidelines set by the county in its investment policy.

For resources related to our guidance, please see:

• Public Funds Investment Act, 30 ILCS 235/2.5 (“Investment of public funds by a public agency shall be governed by a written investment policy adopted by the public agency. . . .”)

• Public Funds Investment Act, 30 ILCS 235/6(d)(9) (“Whenever a public agency deposits any public funds in a financial institution, the public agency may enter into an agreement with the financial institution requiring any funds not insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration or other approved share insurer to be collateralized by any of the following classes of securities, provided there has been no default in the payment of principal or interest thereon: . . . (9) Certificates of deposit or share certificates issued to the depository institution pledging them as security. The public agency may require security in the amount of 125% of the value of the public agency deposit. Such certificate of deposit or share certificate shall:

(i) be fully insured by the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation, or the National Credit Union Share Insurance Fund or issued by a depository institution which is rated within the 3 highest classifications established by at least one of the 2 standard rating services

(ii) be issued by a financial institution having assets of $15,000,000 or more; and

(iii) be issued by either a savings and loan association having a capital to asset ratio of at least 2%, by a bank having a capital to asset ratio of at least 6% or by a credit union having a capital to asset ratio of at least 4%.”)