Depositing Public Funds in Local Banks - Massachusetts

In May 2011, Massachusetts Treasurer Steven Grossman launched the Small Business Banking Partnership, a program that will move at least $100 million of the state's cash reserves from large national banks to local community banks with the understanding that these institutions will use the deposits to increase lending to small businesses.

Recipient banks are required to report quarterly on new small business loans and to pay the state an interest rate no lower than prevailing overnight loan rates.

Although initially the program will be limited to $100 million in state funds, a small fraction of the $3 billion in cash reserves Massachusetts has on deposit, the treasurer anticipates that the program will grow over time.

In an announcement about the new program, Grossman said it would put the state's funds to "optimal use," because, unlike big banks, community banks and credit unions devote most of their resources to local lending.

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• Small Business Banking Partnership