The Columbus Dispatch is reporting Billions in tax deposits uninsured.

Franklin County currently has $300 million of taxpayer money in banks; the city of Columbus easily has tens of millions; and local school districts hundreds of millions more, officials said.

By Ohio law, the uninsured portions of these accounts are backed by collateral purchased by the banks. But many might be backed by bonds of agencies that are in trouble themselves, namely government-sponsored mortgage behemoths Fannie Mae and Freddie Mac.

After the biggest bank failure in decades, plunging stock prices for financial institutions, descending home values and rising foreclosures, the FDIC has launched a new advertising campaign to reassure bank customers. The message: Don’t worry. You’re covered up to $100,000.

The fact that such a campaign is even needed “kind of makes you wonder what’s going on, doesn’t it?” said South-Western schools Treasurer Hugh Garside. “If this all goes bad, I think it’s going to all go bad for everybody.”

No agency tracks how much of government bank accounts are backed or the type of collateral, said Pam Grandon, an attorney who supervises bank examiners for the Ohio Department of Commerce, Division of Financial Institutions.

Despite the protections offered by the FDIC and collateral requirements, Jim Phillips [treasurer of the South Range schools near Youngstown] moved quickly last week to pull $3 million of school money from Home Savings and Loan after the bank said deteriorating business conditions forced it to drop all public accounts by Aug. 11.

In 2006, FDIC-insured commercial banks held $289.7 billion in cash for state and local governments nationwide, of which only 24 percent was insured, according to an FDIC report issued this year.

The report noted that collateralized accounts carry risks: The collateral could lose value before it’s sold to repay account holders or it could be missing because of bank fraud. To illustrate this point, the FDIC cited the 2002 failure of an Ohio bank, Oakwood Deposit Bank near Toledo, which collapsed in an embezzlement scandal.

“Some municipal depositors discovered that (Oakwood’s) collateral securing their deposits was valued at significantly less than agreed, while other depositors found that the bank had pledged the same collateral multiple times,” the FDIC report says.

Adding to the complexity, banks can pool collateral backing multiple customers and accounts together, leaving claimants to fight it out in court over who gets what, officials said.

Home Savings and Loan Drop Public Accounts

How often is it a bank or savings an loan tells depositors it will not take their accounts? A quick search led me to Home Savings & Loan Drops Services.

The faltering economy is changing the way a local lender is doing business.

Home Savings and Loan will no longer handle checking, savings, money markets, or other accounts for public entities including municipalities and school districts.

Home Savings says public entity accounts are typically larger and more costly to manage.

Home Savings will now focus on retail deposits and its loan business.

Mike “Mish” Shedlock
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