Kansas community bankers are fighting to preserve a decades-old law that requires local governments to deposit their money in state-chartered banks.

The law states that cities, towns, counties, and school districts must deposit their "idle money" - meaning funds in time-sensitive investments - only in state-chartered banks.

Municipalities, led by the League of Kansas Municipalities and the city of Wichita, would like the law changed so that they can deposit funds in larger, nationally chartered banks with offices in Kansas, such as Bank of America Corp.

Kim Gulley, director of policy development and communications for the league, said cities and towns would get a better return on their money if there were more competition for municipal deposits. And Carla Palmer, Wichita's city treasurer, said larger banks offer more services - such as merchant services for credit cards and wire transfer services - and are better equipped to handle large transactions.

"For the operations fund, the city of Wichita requires $20 million in collateral" from the bank, Ms. Palmer said. "That eliminates a lot of local banks right away."

Kansas is believed to be the only state with a law on its books that requires cities, towns, and school districts to keep deposits in state-chartered banks. Most other states require only that local governments deposit funds into banks operating in that state.

Both Wichita and the municipalities league are pushing for introduction of a bill to change the law in Kansas' next legislative session, which starts Jan. 8.

Community bankers, naturally, oppose any change that would allow cities, counties, towns, and school districts to put their money in banks without a state charter. Public deposits make up at least 15% of funds in 147 of Kansas' state-chartered banks. In all, roughly $2.9 billion of municipal deposits are kept in state-chartered banks, said Jim Maag, executive vice president at the Kansas Bankers Association.

Robert Kennedy the executive director for communications at the Community Bankers Association of Kansas, disputed Wichita's argument that local banks cannot handle the size of their deposits.

"I would want to know that's true from the mouths of local bankers," Mr. Kennedy said.

Bank trade groups also hinted that a change in the law could stifle economic development. Mr. Maag noted that the law was created in the 1930s to ensure that local banks had enough funds to lend in their communities.

Though the loss of public funds would not destroy any bank, Mr. Maag said there could be liquidity troubles if public funds leave local banks. In many of small towns, he said, there is only one large depositor - the local government.

"Seventy percent of our banks in Kansas are in towns of less than 5,000 people," he said.

Still, even some banks with state charters want the law changed.

John Clevenger, president and CEO of Commerce Bank, Wichita, said he would like to see the change go through so that the bank, a subsidiary of $11 billion-asset Commerce Bancshares of Kansas City, Mo., could give up its Kansas charter and continue to do business with Kansas municipalities. He added, however, that while Commerce is eager to consolidate charters, it has no plans to leave the state.

"I don't think Kansas municipalities are going to send their business to someone who doesn't have a local brick-and-mortar presence," Mr. Clevenger said.

Similar bills have failed in past sessions, but proponents are more optimistic about the prospects this time now that the longtime speaker of the Kansas House - an ardent supporter of community banks - is retiring. Even Mr. Maag, who said the Kansas Bankers Association has opposed all such bills for the past 15 years, suggested that lawmakers might allow banks to accept deposits as long as national banks promise to keep the funds in Kansas.

"I think that Kansas legislature may be more receptive to changes to the law," he said, "if there was some kind of proof positive that investment is going on in the state."

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