Florida lawmakers are mulling legislation that would let small banks and thrifts pledge Federal Home Loan Bank letters of credit - instead of more tangible assets - as collateral on public deposits.
Since the Federal Deposit Insurance Corp. only insures deposits up to $100,000, many states, including Florida, require that banks pledge bonds or other assets as collateral on government deposits that exceed the FDIC limit. Bankers say many small banks cannot meet that requirement and therefore are excluded from bidding on public deposits.
Because many of these banks are struggling to attract funds, the Florida Bankers Association is pushing for a bill that would encourage more banks to participate in public deposit programs. Tennessee and a handful of other states recently passed similar laws.
"After seeing it take effect in Tennessee, the small guys asked us to push for it here," said Anthony DiMarco, director of government affairs at the Florida Bankers Association.
The bill also would set up an "alternative participation agreement" allowing banks with financial problems to stay in the pool of public depositories as long as they put up 200% of their collateral. This provision, however, has rankled the state's credit unions.
"We are concerned about the alternative participation agreement because it is just not good public policy, regardless of who it affects," said Mark Landreth, director of legislative development at the Florida Credit Union League.
Still, since credit unions in Florida cannot accept government deposits, the trade group has decided not to take an official position on the bill, Mr. Landreth said.
House and Senate committees will consider the legislation this week, and Mr. DiMarco said he is confident it will pass. But he added that floor votes might not come until next year, since the Florida legislature wraps up its first portion of a two-year session at the end of April.