JEFFERSON CITY — The Senate on Thursday passed legislation that could put more money in Missouri's banks and garner higher returns on state deposits.
The bill could also make low-interest loans available to more Missouri businesses, farmers and public entities.
The legislation gradually removes a cap on the interest rate banks pay on state deposits. Missouri and Alabama are the only states with such a cap on time deposits.
Without a cap, the state would earn more interest on deposits and could place more money in local banks.
Bankers had originally opposed a plan by Treasurer Clint Zweifel to simply remove the cap. But they agreed to support legislation that phases out the cap by 2014. The Missouri Bankers Association says gradually removing it would lessen the costs to banks during a down economy.
The legislation was approved 32-0 by the Senate without debate Thursday. It now moves to the House. The treasurer's office said it hopes the bill would be considered by a House committee next week.
Missouri has about $550 million in time deposits in local banks. If the interest rate cap were removed, Zweifel's office has said it could afford to put an additional $250 million in Missouri banks.
The legislation removes the cap in stages. Next year, the first $7 million of government deposits would be subject to the limit. That cap would apply to deposits of up to $5 million in 2011, $3 million in 2012 and $1 million in 2013.
The cap would be eliminated in 2014 and the state would receive market interest rates on all bank deposits.
The legislation, sponsored by Republican Sen. David Pearce, a banker from Warrensburg, also would broaden Missouri's linked-deposit program. Under that program, the treasurer lends money to banks at reduced interest rates so banks can offer cheaper loans to small businesses and agricultural projects.
The program allows up to $720 million to be loaned to banks, though documents from the treasurer's office show only $230 million is being used.
The legislation seeks to increase participation in the program by allowing businesses with up to 100 employees to participate. It also makes the program available for the first time to public entities and to people who install solar, wind or other alternative energy sources for their homes or buildings.