We believe that a bank could reduce the amount of securities pledged for a public agency’s account by an appropriate amount when the public agency reduces the amount that it holds on deposit. However, the details of whether the public agency’s permission or consent is required would be governed by your bank’s agreement with the public agency.

Two Illinois laws govern the deposit and collateralization of public funds, the Public Funds Deposit Act and Public Funds Investment Act. Both laws authorize public agencies to enter into agreements with banks to establish how the bank should collateralize the public agency’s funds that exceed the relevant deposit insurance limit. The laws do not require a public agency’s express permission before its bank reduces the amount of pledged securities due to a reduction in the public funds on deposit, but your agreement with the public agency may impose additional consent or other requirements before taking such an action.

For resources related to our guidance, please see:

• Public Funds Deposit Act, 30 ILCS 225/1 (“The treasurer or other custodian of public funds may require such bank, savings bank, or savings and loan association to deposit with him or her securities guaranteed by agencies and instrumentalities of the federal government equal in market value to the amount by which the funds deposited exceed the federally insured amount. . . . Such treasurer or other custodian is authorized to enter into an agreement with any such bank . . . relating to the deposit of such securities. . . .”)

• Public Funds Investment Act, 30 ILCS 235/6(d) (“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 . . . .”)