Chances are you have borrowed money at one time or another, whether in the form of a mortgage on a house or a loan for a new vehicle. When you take out a loan, your lender requests collateral to ensure timely payments in the correct amount. When a bank loans you cash to purchase a car, for example, it will hold the title as collateral until you have finished making payments.

Collateral is something of value that is, in most cases, necessary when borrowing money. Whether you are an individual making a major purchase, a business taking out a loan for a new addition, or a bank needing immediate cash to lend out funds to its customers, collateral can make or break a transaction. 

The good news is Louisiana banks that previously lacked the collateral they needed to borrow money from the state now have a new type of security at their disposal. The Treasury now accepts deposit guaranty bonds as a surety for deposits of state funds. 

Many Louisiana banks already use state deposits for up-front cash to write loans, close home mortgages and get money flowing into their communities. Unfortunately, some banks did not have the securities required by law for the state to deposit money with them. Deposit guaranty bonds will make it easier for these banks to access funds for their customers.

The law requires Louisiana banks to pledge collateral in exchange for the deposit of state funds. Prior to the inclusion of deposit guaranty bonds as collateral, the state only accepted U.S. treasury securities, U.S. government agency issues and letters of credit.

The Interim Emergency Board has approved the Kansas Bankers Surety Company to provide deposit guaranty bonds as collateral as a requirement for accepting deposits of state funds. The company is listed as an approved surety by the U.S. Department of the Treasury and has an A+ rating by the A.M. Best Company. 

I will continue to work as Treasurer to move the concentration of state dollars from a handful of banks to a variety of financial institutions across the state. This increases economic development while diversifying state investments. Expanding the types of collateral securities available to Louisiana banks is one way we can achieve this goal. 

For more information on deposit guaranty bonds, click on the Investments section of the Treasury’s website located at www.latreasury.com.