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New law expands Missouri's investments in statewide, smaller banks

Monday, June 29, 2009 | 4:30 p.m. CDT

EFFERSON CITY — Gov. Jay Nixon signed legislation Monday that expands a low-interest loan program and lets Missouri earn more interest on the money it keeps in local banks.

The new law was a priority for Treasurer Clint Zweifel, who describes it as an economic development tool that could push the state's investment in Missouri banks to more than $1 billion.

Zweifel was with Nixon on ceremonial bill signings Monday in St. Louis and Kansas City.

The legislation broadens a program in which the treasurer deposits money in banks at discounted interest rates so that the banks can offer cheaper loans to small businesses and farmers.

In place since the 1980s, the linked-deposit program has not been used much recently because of its limited eligibility, the market's already low interest rates and a lack of awareness about it among some loan officers, said Bill Ratliff, executive vice president of the Missouri Bankers Association.

Missouri's program already allows up to $720 million in linked deposits to banks, but Zweifel said only about 30 percent of that is being used.

The new law expands eligibility to businesses with up to 100 employees, instead of the current 25, and repeals a provision prohibiting the interest rate on the state deposit from dipping below 1 percent.

It also removes an equity cap that had limited eligibility for farmers and makes the program available for the first time to local governments and people who install wind, solar or other alternative energy sources on their property.

Whereas the linked-deposit program provides banks money at low interest rates, another part of the new law increases the amount of interest banks must pay Missouri for traditional time deposits.

Missouri and Alabama are the only states that limit the interest they can earn from local banks on time deposits.

Beginning next January, Missouri will impose an interest-rate cap only on the first $7 million of government deposits in a bank. That cap will gradually rise until it is eliminated in 2014, when the state will receive market interest rates on all bank deposits.

The state has about $550 million in time deposits in local banks. Zweifel said the treasurer's office could afford to put an additional $250 million in Missouri banks because of the interest-cap repeal. He said that could earn Missouri up to $15 million annually once the cap is fully phased out.


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