State Law Restraining Concentration of Public Deposits Designed to Spread Risks
ST. PETERSBURG, Fla. -- In mid-June, the government of Pinellas County, Fla., decided it would limit its deposits in Freedom Savings & Loan, even though the Tampa thrift offered by far the highest rate of return. The county commissioners said they did not want to funds overly concentrated in one institution. At the time, Freedom held 80% of the county's investments.
"It's just a gamble versus the potential gain in interest," explained county Commission Chairman Bruce Tyndall.
The mid-Florida county's actions were part of a growing concern in the state. Earlier in the year, the Florida Legislature passed legislation limiting the concentration of public funds.
"We saw that several institutions were getting fairly large in public deposits, said Bruce Gillander, chief of the Florida State treasury's banking division. "The basic concept of the Florida Security for Public Deposits Act is that deposits should be spread around, risks should be spread around."
The state originally developed a public deposit security program in 1980, but officials had problems enforcing it, and the Legislature this past session enacted several amendments to strengthen it. State officials now have the power to increase collateral requirements up to 125% for specific institutions and the power to find those failing to comply with reporting requirements.
State Imposes Concentration Limits
The most significant change, however, is the imposition of concentration limits. The new law, which takes effect later this year, will prohibit financial institutions from having more than 10% of their deposits in public funds. Also, the law states that a bank may hold only 10% of the public funds held in all banks in the state, which is about $1.7 billion, and a savings & Loan may hold only 10% of public funds held in the state's S&Ls, which is about $2.2 billion.
Concentration has not really occurred among the more than 350 banks participating in the public funds program. But among thrifts, five out of a total of about 90 in the state hold more than half the pool. Freedom has the largest chunk with $358 million. Other S&Ls that may have to reduce their deposits because of the new law are Florida Federal in St. Petersburg ($278 million) and Citicorp Savings in Miami ($246 million).
Limits are needed, according to Herbert Conley, director of the Florida Comptroller's treasury division, not only because concentration inherently increases risk, but because public funds tend to drift toward less profitable institutions. …