HOW SAFE ARE YOUR MUNICIPAL FUNDS?

On Friday, July 25, 1986, shortly after 4:00 P.M., the FHLB (Federal Home Loan Bank), the agency which regulates savings and loans, closed the doors of the Central Illinois Savings and Loan in Auburn and Virden, Illinois. The FHLB cited poor loan practices and risky investments as attributing to the closing of the 102 year old financial institution. From 1984 to 1985 the Savings and Loan's assets had plummeted from $70.7 million to $59 million.

The City of Virden had on deposit, at the time of the closing, $137,444.58, all State MFT funds. This figure included interest on a money market checking account and three CDs. Of the four separate accounts, in which the money has been distributed, the money market account was the highest with a balance of $102,372.78. Within a matter of a few weeks the City planned to expend $22,332.50 for a sidewalk project and $32,588.83 for a street repair program from this account.

As our money was in four separate accounts, our initial reaction to the closing of the Savings and Loan was not as severe as it should have been. We assumed each account was insured by the FSLIC for $100,000. That assumption was incorrect. According to our accountant and lawyer, a municipality is allowed only one account per banking institution. A municipality is considered to be one owner by the FSLIC insurance law. The number of separate accounts, or different fund names, has no bearing on the situation. All of this meant that the City would loose $37,444.58.

At the time we met with the FHLB attorneys to settle the City's account, our fears were realized. The City of Virden received a check for $100,000 to cover our $137,444.58 account. We can expect some additional funds upon the liquidation of Central Illinois Savings and Loan's assets. FHLB attorneys stated that claims collected on uninsured funds can range anywhere from 5¢ to 50¢ on the dollar.

To further complicate matters the MFT funds which had been refunded cannot be deposited at one of the other two banks in the City as our accounts are already over $100,000 at each. The City is in the process of obtaining collateral from each bank to insure our deposits over $100,000. The State of Illinois obtains collateral on their deposits at banks, and in our estimation, every municipality should follow suit. •

Page 20 / Illinois Municipal Review / September 1986