The state of Illinois plans to inject an additional $1 billion of deposits in banks, thrifts and credit unions in hopes that they will use the funds to make more loans.
"When financial institutions do not have available funds to lend, businesses cannot access the capital they need to invest in new plants, new equipment, new buildings and new home construction," said Alexi Giannoulias, the state treasurer, in a press release Thursday.
The move would increase total state deposits in insured institutions to $2.7 billion.
Currently, any state or federally chartered bank, thrift or credit union that has a location in Illinois can request up to $100 million of state deposits, as long as the amount does not exceed 10% of the bank's total deposits. Mr. Giannoulias said that under the expanded program, eligible institutions can request up to an additional $25 million.
The nine large banks that have received commitments from the federal government for equity investments are ineligible.
"It's critical that Illinois take steps now to ease this crisis and get financial institutions lending to local businesses and consumers again so that this international crisis does not spread to other sectors of the Illinois economy," Mr. Giannoulias said.
The one-year deposits are expected to earn interest at rate of 3.38% and will be 102% to 110% collateralized by participating banks.
