$400 million is how much the treasurer will be able to invest in CDs under a new policy, up from $350 million.
State Treasurer James Lewis’ office manages $1.6 billion in bond proceeds, the huge pots of money created when a government entity decides to fund a big-ticket project such as a school or sewer. Last month, Lewis announced he’d let more of that money be invested in CDs—fixed-term deposits much like what ordinary consumers can purchase from a bank down the street.
Typically, CDs are less profitable than stock market investments, but safer. Lewis’ approach stands in contrast to the more aggressive position taken by the State Investment Council.
“Hopefully the expansion of our bank CD program will assist the state to pull out of the worst recession experienced since the Great Depression, which started with the stock market crash in 1929 and lasted over 10 years,” Lewis states in a press release on May 14, eights days after a record stock market dive.
Deputy Treasurer Mark Valdes says the new CD policy isn’t merely a defensive crouch in anticipation of another stock market dive. “We really have a quite conservative portfolio as it is,” he says.
Rather, the stated aim echoes that of the 2008 Wall Street bailouts: to give banks extra capital so that they can make more loans to the public, thus increasing economic activity. At least, that’s the theory. There is a catch.
“The law doesn’t demand that [banks] report back to us how they’re utilizing the additional capital,” Valdes tells SFR. “We’re just hoping that if banks access the additional funds, they will be willing to lend back out.”
So far, Valdes says, only one bank has inquired about the new CD program. Part of the reason may be that, to protect taxpayers, banks must post between 50 and 102 percent collateral on any state deposit above $250,000.