Topic: Public Funds
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A county requested a 48-month certificate of deposit at our bank. Is that permissible in Illinois?
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We are not aware of any term limits under Illinois law, but the answer depends on the individual public agency’s investment policy. All public agencies must adopt written investment policies, including “guidelines regarding collateral requirements, if any, for the deposit of public funds” and “if applicable, guidelines for contractual arrangements for the custody and safekeeping…
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The Public Funds Investment Act limits our public funds deposits that are “not collateralized or insured by an agency of the federal government.” To avoid that limitation, must our public funds deposits be collateralized by assets of the federal government, or can they also be collateralized by other assets, such as a mortgage backed security (assuming it is approved by the public depositor)?
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The limitation on public funds deposits in the Public Funds Investment Act (75% of your capital stock and surplus) applies only when a public funds deposit is both uninsured by an agency of the federal government and uncollateralized. In other words, if your local municipality has approved the use of mortgage backed securities as collateral,…
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The Public Funds Investment Act limits the amount of uninsured and uncollateralized public funds deposits we hold to “75% of the capital stock and surplus” of our bank. If we place public funds under a CDARS or ICS arrangement, does the 75% limitation apply? One of our municipal customers is concerned about that provision. Also, does the definition of “capital stock and surplus” include retained earnings?
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No, the 75% limitation in the Public Funds Investment Act (the “Act”) does not apply to these arrangements. Funds held through a Certificate of Deposit Account Registry Service (CDARS) or an Insured Cash Sweep (ICS) arrangement are fully insured by the FDIC. In addition, a 2005 amendment to the Act added a new Section 6.5…
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One of our customers is a governmental entity that originates large ACH transactions that exceed our legal lending limit. We currently require special approval for ACH transactions that exceed our lending limit, which can delay the transaction; is that necessary?
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We are not aware of any laws or regulations that require you to institute approval procedures for ACH transactions that exceed your institution’s legal lending limit. Your approval processes and policies on ACH transfers are risk management decisions left to your institution’s discretion. The FFIEC’s Retail Payment Systems IT Booklet has general guidance on setting…
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Are you aware of any term limits associated with public fund certificates of deposit (CDs)?
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We are not aware of any term limits under Illinois law, but the answer may depend on the individual public agency’s investment policy. As we have discussed, there are no Illinois rules or regulations adopted at the state level that are directly on point regarding the investment policies and collateral requirements of local government units.…
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We have an account held by a DMV office, and they said that we cannot charge any fees on the account and that we must apply to the Secretary of State before collecting any account fees. Is that true?
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We believe that the DMV office has a good argument for their interpretation of the law. As stated in the section referred to in the Secretary of State’s letter, any money deposited in a bank account “shall be forwarded to the Secretary of State by such designate banks or savings and loan associations for deposit…
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Is it true that we cannot charge any finance charges on a municipality’s credit card account until 60 day grace period has passed?
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We do not believe that that the section of the Local Government Prompt Payment Act cited by the municipality would apply to a credit card account, for two reasons. First of all, the Local Government Prompt Payment Act applies only to contracts with vendors or contractors for goods or services, usually in the construction context,…
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How are municipal accounts regulated in Illinois? Does the state have a list of approved safekeeping institutions? What should we do if account balances are in excess of the FDIC insurance limit?
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Illinois law allows any FDIC-insured bank to hold investments and deposits of public funds. 30 ILCS 235/2(b)
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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…
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Local municipalities would like to open accounts (checking, EDAs). What documentation is necessary? For example, how do you confirm the elected officers?
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The answer to your question will be driven by your bank’s own policies and procedures. Similar to the case of opening business accounts, many banks have a written policy requiring a copy of a resolution adopted by the governmental unit’s board of trustees that grants authority to one or more individuals to open the account…