State Treasurer to Establish Guidelines For Accepting Surety Bonds as Collateral for State Deposits

The Illinois Bankers Association is pleased to announce an agreement between the IBA and State Treasurer Judy Baar Topinka to establish guidelines for accepting surety bonds to collateralize state deposits.

IBA members have long encouraged the use of surety bonds as a viable alternative form of acceptable collateral. Allowing surety bonds to be used in lieu of part or all of the securities that may be pledged puts another tool in banks' arsenals to secure state deposits. The Treasurer's office, in consultation with the Illinois Department of Financial and Professional Regulation, carefully researches the safety and soundness of surety bonds and decides to accept only surety bonds that are issued by companies with the highest ratings. Financial institutions wishing to secure state deposits with surety bonds must provide the Treasurer's office with a copy of the financial information provided to the issuer of the surety bond for the Treasurer's review. The Treasurer's office will take all necessary steps to ensure that the state is not liable for a public deposit if it is discovered that a financial institution provided false information to the issuer of the surety bond.

The IBA Government Relations and Ag Advisory committees have kept the issue of surety bonds as collateral as a priority item to improve the environment for banks when securing state funds. Use of surety bonds will allow many banks to more effectively and efficiently serve consumers, businesses and farm operations while enhancing their liquidity position.

When banks accept state deposits in excess of Federal Deposit Insurance coverage, the public treasurer and custodians of public funds often require the excess to be collateralized with agencies and treasuries or other acceptable types of collateral. Today's announcement expands the cafeteria list of alternative products available to secure state funds. The Illinois Deposit of State Moneys Act provides the State Treasurer with the discretionary authority to accept surety bonds as security, which many cities and school districts currently accept. We applaud the Treasurer's decision to take this action today.

For more information, contact the IBA's Government Relations Department at 800-783-2265.