This is a nice move by Minnesota Gov. Mark Dayton. The governor announced he will deposit $100 million to $200 million in state investment funds in community banks throughout the state. Banks suffering financial difficulty will not be eligible for the money.
Minnesota bankers have long advocated that state money should be depositeed locally instead of being invested in places like New York or China. The debate in the past has always been that the state investment managers have an obligation to go after higher yield, so that typically led them out of state. Now with all investment and deposit options paying so little, it is easier for the Governor to require more of the money stay local.
The strange thing is why he designated only $100 million to $200 million. This article notes the state has $1 billion to work with.
Regardless, the move at this point is largely symbolic. Banks don’t lack for deposits. The issue is loan demand. It is kind of like the Small Business Lending Fund, which turned out to be a big flop. Treasury made $30 billion available to banks, but limited to the highest rated banks. Only a small fraction of the money was ever distributed. The banks that really could have used the money were not eligible for it. Same thing here in Minnesota with the Governor’s program — the banks that really need the money probably don’t quality.
Nonetheless, I think it is always a good idea for the state to keep its money in local institutions. Money deposited in Minnesota banks helps Minnesotans, and I think most people in the state like that.