Author: Rubinowitz, Leonard S
Summary
This report discusses how state and local governments receive funds from taxes, fees, charges, and transfers from other levels of government which are invested or deposited until they are needed for the payment of various government expenses. Since the late 1960’s, several state and local governments have developed programs designed to deposit these funds in institutions which have a record, or will make a commitment, of granting loans which are desired by state and local governments for a range of social and economic purposes. Generally, about ten percent of the deposit base of commercial banks is comprised of some sort of public funds. Selective deposit programs are formulated under the theory that the large amounts of public funds are a sufficient incentive to encourage lenders to alter or maintain categories of lending activity which serve the special needs de fined by the government. Moreover, the selective deposits of public funds may be used to encourage levels of lending beyond the actual amount of public funds on deposit. That is, selective deposit programs represent a method of leveraging private investments in socially and economically desirable directions.
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