One of our public funds accounts’ auditors told them they were under-pledged in securities for the year. Is this the public funds accountholder’s responsibility to keep track of, or is the bank responsible for calculating and maintaining the securities total pledged? Is there a time period (monthly/quarterly)? Is this set by bank policy, or are there regulations?

Under Illinois law, a bank is not responsible for ensuring that a public agency has met its responsibilities for the deposit of public funds.

We are not aware of any tracking or monitoring responsibilities established by the Public Funds Deposit Act or Public Funds Investment Act. The Public Funds Investment Act requires banks holding public funds to furnish their two most recent call reports to a public agency depositor (unless the funds are held in “an interest-bearing savings account, interest-bearing certificate of deposit, or interest-bearing time deposit,” the bank is located in Illinois, and the funds are fully FDIC-insured), but it does not impose any additional reporting or monitoring responsibilities.

We do recommend reviewing your account agreement with the public agency, which may impose some additional tracking or reporting responsibilities on your bank.

For resources related to our guidance, please see:

McKay v. Kusper, 252 Ill.App.3d 450, 462 (1st Dist. 1993) (“The Deposit Act imposes a duty to invest public funds solely on the ‘custodian’ of such funds. In the present case, the custodian of the scavenger sale proceeds is the County Clerk, not the Bank. Under Illinois law, banks have neither the right nor the duty to unilaterally choose a new form of investment for their depositors. The Deposit Act does not direct banks to insure compliance by public officials. Therefore, the Bank cannot be liable for Kusper’s alleged failure to properly invest public funds. . . . The duties between a bank and a depositor are defined entirely by the terms of the account agreement between them, and there can be no recovery for the breach of a non-existent duty.”)

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. Any such treasurer or other custodian shall be discharged from responsibility for any funds for which securities are so deposited with him or her, and the funds for which securities are so deposited shall not be subject to any otherwise applicable limitation as to amount.”)

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, provided there has been no default in the payment of principal or interest thereon: . . .”)

Public Funds Investment Act, 30 ILCS 235/6(a) (“No bank shall receive any public funds unless it has furnished the corporate authorities of a public agency submitting a deposit with copies of the last two sworn statements of resources and liabilities which the bank is required to furnish to the Commissioner of Banks and Real Estate or to the Comptroller of the Currency. Each bank designated as a depository for public funds shall, while acting as such depository, furnish the corporate authorities of a public agency with a copy of all statements of resources and liabilities which it is required to furnish to the Commissioner of Banks and Real Estate or to the Comptroller of the Currency; provided, that if such funds or moneys are deposited in a bank, the amount of all such deposits not collateralized or insured by an agency of the federal government shall not exceed 75% of the capital stock and surplus of such bank, and the corporate authorities of a public agency submitting a deposit shall not be discharged from responsibility for any funds or moneys deposited in any bank in excess of such limitation.”)

Public Funds Investment Act, 30 ILCS 235/6(d) (“(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 . . . 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; . . . The depository institution shall effect the assignment of the certificate of deposit or share certificate to the public agency and shall agree that, in the event the issuer of the certificate fails to maintain the capital to asset ratio required by this Section, such certificate of deposit or share certificate shall be replaced by additional suitable security.”)