California community banks are urging state lawmakers to enact legislation that would make it easier for them to grab a chunk of the state's deposits and use that money to lend in their communities.

Though all California banks are eligible to solicit deposits from the state's $2.1 billion short-term-deposit fund, less than a third of the 350 community banks actually do so. The reason: Many are turned off by a law requiring that participating banks back state deposits with 110% collateral, such as U.S. or California bonds.

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