Cities must examine banking relationships amid turmoil

Cities and towns should take a hard look at banks holding their public funds in light of the recent turmoil in the banking industry.

That was the message from speakers who spoke Monday at the annual conference of the Government Finance Officers Association in Portland.

“You might want to change the way you’re doing your banking,” said Cory Kampf, chief financial officer for Anoka County, Minnesota. “If you hear about banks being downgraded … these are things to look out for and understand where your bank is,” Kampf said, suggesting that some local governments may want to issue Requests for Proposals for new services. “Understand the totality of your deposits and liquidity.”

After the turmoil in the banking industry that led to the collapse of Silicon Valley Bank and others, cities and towns must review their banking relationships to ensure that public deposits are protected.


The March collapse of Silicon Valley Bank and Signature Bank of New York, followed by the acquisition of First Republic Bank by JPMorgan Chase & Co., raised concerns about the health of regional banks across the country. Local governments, tasked with protecting public deposits, need to pay attention to whether their banks — many of which are smaller community banks — can meet federal collateral requirements, panelists said.

The Federal Deposit Insurance Corporation guarantees deposits of less than $250,000, a limit below what many municipal entities have. Bank accounts over $250,000 must be secured under state law to be guaranteed by the FDIC. In the event of bank failure, the FDIC will honor the guarantee agreement, but does not guarantee that the guarantee will be sufficient to cover the value of the unsecured funds.

“Can banks insure and protect their assets? Not everyone can,” said Jonathon Millard, senior vice president and chief market officer at Bank of America. “Understand the collateral mix your bank offers because the cost of collateral is driving their appetite for deposits,” Millard said. “Having a well-capitalized partner is important,” he added. “Out of an abundance of caution, it makes sense to have multiple partners.”

In early May, the Treasury and State Auditor of New Mexico sent out a joint alert warning that some local governments are circumventing bank guarantee requirements by “adding multiple officials or elected officials to bank accounts” to secure a $250,000 account per signatory. .

“This practice is not consistent with state or federal law,” the notice said. “We believe this alert will focus attention on the importance of the underlying issue – safeguarding public funds.”

Cities must examine banking relationships amid turmoil

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