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Task force study: local deposits may boost Utah lending but will lower portfolio yield
Summary
A consultant team told the Asset and Investment Review Task Force that shifting some public reserves to Utah banks could lower interest income for the state’s portfolio but generate measurable local lending and tax benefits if policy and tracking controls limit out‑of‑state leakage.
The Asset and Investment Review Task Force heard a presentation from consultants about whether placing a portion of public reserves with Utah banks could spur local lending and increase economic activity. Chair Marlo Oates introduced the item and consultants from the University of Chicago and Turb Partners summarized model results and policy trade‑offs.
The presenters described two stylized scenarios: in a frictionless model — where new deposits are lent and remain in state — the marginal tax and income effects can outweigh the lower interest earned on local deposit instruments. In more realistic scenarios that include leakage and regulatory friction, the net economic return shrinks but can remain positive under some assumptions. As one presenter put it, “The core thesis is the local deposits will earn lower interest. But may generate higher economic returns to instate lending income growth and expanding the tax base.” The consultants recommended a carefully designed pilot with stakeholder engagement, targeted bank-selection criteria and data reporting requirements so that outcomes can be measured and compared with counterfactuals.
The presenters emphasized major caveats: deposits are fungible, some banks reinvest heavily out of state, and private‑credit and fintech dynamics complicate simple pass‑through assumptions. The task force discussed conditioning participation on banks’ historical local loan ratios, data commitments, and potential risk‑sharing mechanisms. The group asked the consultants to refine friction parameters and to include scenario sensitivity in the draft report for the legislature.
