AB 57

Under current law, the Investment Board (SWIB) on behalf of the state, the

county board on behalf of a county, the common council on behalf of city, the village

or town board on behalf of a village or town, and the governing board of certain other

local governmental units (collectively, public depositor) must designate one or more

federal or state credit unions, federal or state savings and loan associations, state

banks, savings and trust companies, federal or state savings banks, or national

banks in this state (financial institutions) for deposit of all public moneys received

by the public depositor. The Depository Selection Board must establish procedures

for the selection of financial institutions receiving public deposits from state

agencies. An appropriation to the Department of Financial Institutions (DFI)

provides funds to repay public depositors for losses resulting from a failed or failing

financial institution's failure to repay the deposit of public moneys. DFI administers

the claims process against the moneys in this appropriation. The maximum payment

that DFI can make to a public depositor for losses from a single financial institution

is $400,000, not including any federal deposit insurance also paid to the public

depositor. These loss payment provisions also apply to local government deposits in

the local government pooled-investment fund managed by SWIB. Although the

appropriation to DFI to pay public deposit losses to public depositors is a sum

sufficient appropriation, there is a limit to the amount that may be expended from

the appropriation. This limit is calculated based on the balance of the state deposit

fund on June 30, 1955, plus interest accruing on that balance. Beginning on August

1, 1985, interest on the balance is calculated at a rate of 5 percent per year.

Also under current law, a financial institution that originates a residential

mortgage loan on or after January 1, 1994, and that requires and maintains an

escrow account for the borrower to assure the payment of property taxes or insurance

by the borrower, must pay interest on the escrow account at the variable interest

rate. This escrow account interest rate, which is calculated by DFI, is the average

of the interest rates paid by financial institutions on regular passbook deposit

accounts and is published annually by the Legislative Reference Bureau (LRB).

This bill increases, from $400,000 to $750,000, the maximum payment that DFI

can make to a public depositor for losses from a single financial institution. The bill

also decreases, from 5 percent per year to the escrow account interest rate published

annually by the LRB, the interest accruing on the balance of the state deposit fund

that is appropriated to pay public deposit losses.