Topic: Public Funds
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Can public funds be deposited into a bank that has a less than satisfactory Community Reinvestment Act (CRA) rating? We are aware that the Deposit of State Moneys Act restricts state funds from being deposited into banks with such a rating, but what about local funds (such as funds from counties, municipalities, and fire protection districts)?
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No, public funds cannot be deposited into a bank with a less than satisfactory CRA rating under Illinois law. Effective January 1, 2022, the Public Funds Investment Act prohibits public funds from being deposited in a financial institution with a federal CRA rating that is less than satisfactory. The Act defines “public funds” as “funds…
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At what intervals are we required to provide the corporate authorities of a public agency with our two most recent Call Reports under the Public Funds Investment Act?
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We believe that you must provide your two most recent Call Reports before you receive any public funds. For subsequent Call Reports, we recommend reviewing the public agency depositor’s investment policy and your account agreement for any specific timing requirements. In the absence of any guidance, we recommend submitting the Call Reports on a quarterly…
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In Illinois, is there a minimum interest rate that must be paid on certificates of deposit (CDs) that are purchased with public funds? We are aware that a minimum interest rate for CDs purchased with public funds exists in Iowa.
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No, we are not aware of a minimum interest rate that must be paid on CDs purchased with public funds, but the answer may depend on an individual public agency’s investment policy and written agreement with your financial institution. The Illinois State Treasurer is required to “enter into deposit agreements with financial institutions specifying the…
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Can a national bank reduce the amount of securities pledged for a public agency customer’s account without the customer’s permission? For example, if an entity with pledged securities reduces its deposits at the bank by $1 million, can the bank reduce the amount pledged by that same amount?
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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…
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We have a police pension fund account for a local village. The village CFO wants to know if the pension fund account should be collateralized, since all other village accounts that hold public money are collateralized. Our position has been that although the police officers’ deferrals are matched by funds from the village, the funds cease to be public money once placed in the pension account since they belong to the police officers. Are we correct that this account does not need to be collateralized?
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Yes, you are correct that pension fund accounts do not need to be collateralized. The funds held in a pension fund account are specifically excluded from the requirements of the Public Funds Investment Act. For resources related to our guidance, please see: Public Funds Investment Act, 30 ILCS 235/1 (“The words ‘public agency’, as used…
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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?
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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…
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A recently enacted Illinois law requires township and road district clerks who issue payouts from a township or road district fund to “attest” to such payments. Should banks be concerned about honoring checks or instructions for other forms of payments (such as wires or ACH transfers) on these accounts without a clerk’s attestation? Should we treat the clerk as an authorized signer on the township or road district account?
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No, we do not believe that banks need to check for a clerk’s attestation before making payments on behalf of an Illinois township or road district customer. We also do not recommend unilaterally altering your signature cards for these customers to add their clerks as authorized signers, as the new law does not grant them…
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Our local department of motor vehicles facility (DMV) would like to open a deposit account with us. They told us that we cannot charge any account fees to them for our deposit account services. Is that true?
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Yes, we believe that the DMV facility’s interpretation of Illinois law is correct. The Illinois Vehicle Code requires banks holding deposits from a Driver License Exam Station (i.e., a DMV facility) to forward such funds to the State Treasurer twice a month. The Code does not permit a bank to withhold charges for fees before…
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We provide deposit services for a county treasurer and collateralize the deposits that are not FDIC-insured with certificates of deposit (CDs) issued by other banks. We have engaged a third party to obtain eligible collateral for the county’s uninsured deposits. We recently found that the third party had arranged for two $250,000 CDs with the same bank. The issuing bank told us that the CDs are fully insured through a state depositors’ insurance fund backed by a private insurance company. Are these CDs eligible collateral for the county’s funds?
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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…
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A teacher’s union requested to purchase a certificate of deposit (CD). The union representative said the funds to purchase the CD come from teachers’ union dues. Do teachers’ union dues constitute “public funds” under the Public Funds Investment Act? The union is formed as a not-for-profit corporation.
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No, funds collected from teachers’ union dues do not constitute “public funds” under the Public Funds Investment Act (Act). The term “public funds” refers to money belonging to a public agency. A “public agency” is any political corporation or subdivision of the State of Illinois. A teacher’s union is not a political corporation or subdivision…