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Can we pledge mortgage backed securities as collateral securing public funds from public school districts under Illinois law (specifically, the Public Funds Investment Act)? – IBA Compliance Connection

IBA Compliance Connection

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Can we pledge mortgage backed securities as collateral securing public funds from public school districts under Illinois law (specifically, the Public Funds Investment Act)?

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Illinois laws allow public funds treasurers to accept securities as collateral, with no restrictions on the type of securities, and you should refer to your required written public fund investment policy to confirm that this type of collateral is permitted.

Section 1 of the Public Funds Deposit Act provides that any treasurer or other custodian of public funds may accept as collateral “any securities or other eligible collateral authorized by Sections 11 and 11.1 of the Deposit of State Moneys Act or Section 6 of the Public Funds Investment Act.” 30 ILCS 225/130 ILCS 235/6(d)(8). The Public Funds Investment Act requires every public agency to adopt a written investment policy (that includes collateral requirements for deposits). 30 ILCS 235/2.5(a)(5), and you will have to examine the policy to make sure that the type of security you identified is permitted collateral.

Notwithstanding the above, note that subsection 6(f) of the Public Funds Investment Act also provides that a public agency “may at any time declare any particular security ineligible to qualify as collateral when, in the public agency’s judgment, it is deemed desirable to do so.” 30 ILCS 235/6(f).