Depositing Public Funds in Local Banks – Massachusetts

Date: 9 May 2011 | posted in: Banking | 0 Facebooktwitterredditmail

In May 2011, Massachusetts Treasurer Steven Grossman launched the Small Business Banking Partnership, a program designed to move some of the state’s cash reserves from large national banks to local community banks with understanding that these institutions will use the deposits to increase lending to small businesses.

Recipient banks sign a memorandum of understanding stating their intent to expand lending to small businesses. They are required to report quarterly on new small business loans and to pay the state an interest rate no lower than prevailing overnight loan rates.

Initially the program was designed to move up to $100 million in state funds, with no more than $5 million deposited with any single bank.  But, based on the program’s success, the treasurer increased the cap to $10 million for a single bank and expanded the initiative’s overall scope. As of October 2012, the state had moved over $270 million in deposits to 50 local banks.  (This is still a small fraction of the roughly $3 billion in cash reserves Massachusetts has on deposit.)

These 50 banks in turn have made over 2,500 new small business loans, many directly attributable to the state’s deposits.