Recently, I have written about Senator Ben Hueso's proposal to convert the California Infrastructure and Economic Development Bank (I-Bank) as a depository institution.  As a depository bank, the I-Bank would hold and lend taxpayer dollars. 

Earlier this week, the Senate Committee on Governance and Finance held the first policy committee hearing on the bill, SB 528.  The bill analysis for the hearing raised numerous and significant concerns, including:

"However, any state bank will need significant capital to earn sufficient confidence of depositors, and SB 528 does not provide the funds necessary to do so. State law requires public investment officials to be fiduciaries, subject to the prudent investor standard, defined as someone acting with care, skill, prudence, and diligence necessary to safeguard the principal and maintain the liquidity needs of the agency. If a bank does not have capital, why would a steward of public funds subject to the fiduciary standard deposit funds in it? The Committee may wish to consider whether SB 528’s bank is viable."

"Most I-Bank activities involve issuing loans that are repaid over a fixed term of the loan, so it is unclear how the I-Bank could loan funds held on deposit for long-term purposes while at the same time ensuring that its depositors have access to their funds necessary to pay their bills."

Despite these and other concerns, the Committee passed the bill out on a 5-2 vote.  SB 528's next stop will be the Senate Committee on Banking and Financial Institutions.  See also Bank Directors Appointed By Politicians - What Could Possibly Go Wrong?