Illinois' state treasurer is seeking advice from bankers that could affect a key bank-state relationship: linked-deposit programs.
Treasurer Judy Baar Topinka has created an advisory board, made up of executives from commercial banks, thrifts, and credit unions, that may be the first of its kind in the country.
"The state's financial institutions are one of the largest deposit sites for state funds," said Jack Seymour, the treasurer's manager of banking. "Therefore, (Ms. Topinka) wants an open dialogue with them."
Though state governments have always deposited money in financial institutions, the deposits often have strings attached, such as where the funds can be invested and how much liquidity the bank must maintain. The State Treasurer's Advisory Board is being charged with reviewing the way the state's $1.6 billion in deposits is deployed.
Specifically, the board will help develop criteria for linked-deposit programs, in which the state deposits money in financial institutions to be used to finance economic development.
About 15 state treasurers' offices operate various linked-deposit programs, according to the National Association of State Treasurers.
Until now, bankers had no input on linked-deposit programs, said board member James R. Shafer, president of $32 million-asset First National Bank in Tremont.
"In the past, treasurers usually announced a program before bankers heard about it," he said. "My opinion is that a lot of the linked-deposit programs prior to Judy Topinka were more politically oriented and publicity oriented."
Donald Versen Sr., president of $790 million-asset Columbia National Bank of Chicago, who chairs the committee, agreed that Ms. Topinka's advisory committee is more than "political propaganda."
Illinois' linked-deposit programs have had several problems, Mr. Seymour said.
For instance, there has not been a sound way to ensure that financial institutions actually lend state deposits for stated purposes, or even that the development projects are completed, he said.
Also, some contracts have required financial institutions to make payments to certain developers in order to get state deposits, he said, which could lead to political favoritism.
"It was not something (Treasurer Topinka) felt fit in with her ethical view of behavior," he said.