The state treasurer and auditor warned Monday that some local governments in New Mexico have engaged with a banking practice that is “inconsistent with state and federal law,” and could put taxpayer money at risk. At least one bank has been steering mostly rural communities towards the practice.
Any bank account with a balance above $250,000 in the U.S., including those of local governments, requires collateral to be insured by the Federal Deposit Insurance Corporation, or the FDIC. State law says what that collateral should look like.
State Auditor Joseph Maestas said in recent audits, he’s seen a troubling pattern. Several local governments have bypassed that rule by having multiple employees or elected officials sign for accounts, beyond the people who can legally sign.
"From my standpoint, based on our findings in these particular audits, it was the lending institutions that were incorrectly assigning custodians," Maestas said.
He said he and State Treasurer Laura Montoya issued the alert because the practice puts public funds at risk, especially if a bank were to fail, which has happened to three out-of-state banks this year.
"We want to make sure that any banking institution cease and desist from incorrectly designating multiple custodians as a means to secure additional FDIC insurance," Maestas said.
Treasurer Montoya said one or more banks have been encouraging mostly rural communities into signing more people onto accounts than is legal and added that there could be conflicts of interest at play.
Neither Maestas nor Montoya identified individual communities or banks that have engaged with the practice.
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