Missouri approves bill removing cap on interest rates

By David A. Lieb
Associated Press

Published: Tuesday, May 5, 2009 8:49 AM CDT

Legislators gave final approval Monday to a bill that could allow Missouri to earn more interest on its money while making more cash available for loans to private businesses.

The measure was a priority for State Treasurer Clint Zweifel, who declared Monday that it "gives the state a strategic tool as we fight to turn the economy around."

The Missouri House sent the bill to Gov. Jay Nixon without any dissent. The bill had previously passed the Senate.

Missouri and Alabama currently are the only states limiting the interest they can earn from local banks on time deposits. Missouri has about $550 million in time deposits in local banks.

The treasurer's office has said it could afford to put an additional $250 million in Missouri banks if the interest rate cap were removed, giving the banks more cash while also earning more money for the state.

Missouri's banker association, which originally expressed concerns about the bill, agreed to back it after Zweifel agreed to phase out the interest rate cap instead of repealing it immediately.

Beginning next January, the legislation would impose an interest-rate cap only on the first $7 million of government deposits in a bank. 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.

Zweifel said repealing the interest rate cap could earn Missouri between $10 million and $15 million annually, once fully phased in.

"Taxpayers will be getting a fair return on state deposits for the first time in more than half a century," Zweifel said in a written statement.

The legislation also would broaden Missouri's linked-deposit program. Under that program, the treasurer deposits money in banks at lower interest rates so that the banks can offer cheaper loans to small businesses and agricultural projects.

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

The legislation seeks to increase participation in the program by expanding the definition of a qualifying small business from 25 employees to 100 employees. It also makes the program available for the first time to public entities and to individuals who install solar, wind or other alternative energy sources for their homes or buildings.

To account for already-low interest rates, the legislation also seeks to encourage participation in the linked-deposit program by repealing a provision prohibiting the interest rate on the state deposit from dipping below 1 percent.

Web link:

Legislature: http://www.moga.mo.gov

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