TRENTON – A bill sponsored by Senate Majority Leader Stephen Sweeney (D-Gloucester, Cumberland and Salem) to spur small business lending by New Jersey’s community banks by allowing the state to invest a portion of its cash management funds in certificates of deposit, fixed income securities and other investments was approved today by a Senate committee.
The bill (S-2552) is intended to increase the liquidity of New Jersey community banks so they can make more and cheaper capital available to small businesses, local governments and individual borrowers.
“With this bill, we’re trying to respond to the continuing world financial crisis,” Senator Sweeney said. “In the current credit crunch, business owners and other borrowers are struggling to obtain funds and finding they have to pay higher interest rates when they are able to secure loans. This bill will help make more capital available for community banks to lend while also protecting the value of the Cash Management Fund and the State pension funds that are invested in those banks.”
The bill would permit the Division of Investment to invest cash management and pension funds in obligations that are insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Share Insurance Fund.
Current law already provides the Division the authority to place State of New Jersey Cash Management Fund and State pension funds in these investment vehicles, but current regulations restrict such investments and place limitations on the size of the investments.
“The bill is necessary because revising the regulations to loosen the current restrictions could take up to a year,” Sweeney said. “I’m glad Governor Corzine chose to make my proposal to invest state funds in community banks part of the state’s economic stimulus plan. This bill will give banks the resources they need to be better able to provide loans to small businesses and individuals while keeping our investments secure.”
The bill would sunset the authority to make the investments one year after the enactment of the bill unless administrative regulations extending the authority are adopted. If the State Investment Council does not adopt regulations extending this authority the Division would not be required to liquidate investments made prior to that date.
The bill was approved by the Senate Budget and Appropriations Committee by a vote of 14-0 and now goes to the full Senate for consideration.