09/18/24
For a little over a month now, OBL staff has been laser focused on attempting to effectuate changes to the abrupt and significant revisions that the Ohio Treasurer of State’s office has made to the Ohio Homebuyer Plus Program. A full rundown of the history and proposed changes can be found in previous articles HERE. The program, which was created in last year’s state operating budget, and which just went live this January, started out as a win for banks, win for consumers, and win for the State. The program was created as part of a package of initiatives to address housing issues in Ohio and was intended to help spur and accelerate individual’s saving to purchase a home. This was done by creating a linked deposit program whereby the state places a deposit with a bank at a below market rate and then the bank passes along a portion of the savings to the customer in the form of a rate increase on their savings account. Historically, most linked deposit programs have been rate buydown programs, to lower the interest rate on loans, and this was the first rate increase version, where the goal was to increase the interest on an account.
Again, historically, many of the linked deposit programs in the state have not performed well over the last decade or so because of the rate environment and how low rates had previously been for some time. A rate buydown program is not very attractive when rates are already so low. For the Homebuyer Plus Program, to counteract some of that momentum and baggage of previous linked deposit programs, the Treasurer’s office looked for new ways to get banks involved in the program to try to make the program a success. In doing so, the Treasurer’s office set up the program in a way to try to offset the costs banks would incur in setting up the program, of which there were many significant costs such as training, programing, and marketing. Thus, the Treasurer’s office made the decision to fully fund, or provide state deposits, up to the maximum amount that can be placed in the account, $100,000, at the time of account opening, no matter how much the customer placed into the account provided it was above the $100 minimum. Additionally, the Treasurer’s office set the rate to be paid to the state on those state deposits at 87 bps. At the same time as this was going on, banks were looking for ways to increase liquidity.
The Treasurer’s office then asked OBL and others to go out and get members involved. As should have been expected, once word of the program got out as a way to both help community banks and as a mechanism to help customers, the program took off like wildfire. The trajectory of accounts opened, if looked at on a chart, looks like a hockey stick with a significant increase in accounts opened throughout the spring and into the summer. Around this time, OBL began having conversations with the Treasurer’s office regarding capacity issues and whether this was sustainable. As far as capacity, there is an overall cap on the amount the Treasurer’s office can invest in all of the linked deposit programs in the state, a full list of those programs can be found HERE but it includes programs like Ag Link and Grow Now. The overall cap is 12% of the State of Ohio’s treasury. This fluctuates over time but right now this amounts to around $3.2 billion. Once again, this is not a program where there is a pot of money allocated, it is instead a way for the state to spur investment, savings, or lending in certain areas by investing state dollars in banks at a below market rate to further those goals. Thus, the entire goal of the linked deposit programs is for the state to forgo investment earnings to help advance the goals of the state. Additionally, OBL raised concerns voiced by members regarding the parameters of the program and whether there should be additional guardrails.
After voicing these concerns and having conversations regarding capacity and guardrails as far back as late spring and early summer, OBL was told both by staff and Treasurer Sprague that if state resources became an issue, it would be addressed, and that the Treasurer’s office would seek to increase the capacity or find ways to address the issue. This was told to both OBL and to members directly several times. At the same time, OBL was even encouraged to try to recruit more members into the program and hosted a webinar where Treasurer’s staff talked about the program and went through the guidelines and parameters of the program while never indicating that there would be significant changes. When any changes were discussed, it was always anticipated that they would be on a go-forward basis and would not affect accounts already opened.
After hearing nothing regarding any changes or further discussions on capacity for most of the summer, fast forward to August when OBL received a call from the Treasurer’s office requesting a meeting within a couple days to talk about the program. At that meeting, it was made abundantly clear that the office now had concerns regarding capacity and that a program that took off like wildfire was now a full-blown blaze with concerns the cap would be hit prior to the end of the year if steps were not immediately taken. Initially, the Treasurer’s office had proposed pulling back all the deposits that exceeded the amount that customers had put into their accounts that had already been placed through the program at banks. This would have amounted to an almost overnight removal of $1 billion to $1.5 billion in deposits from community banks throughout Ohio. While it should have been readily apparent how bad an idea this would have been to the Treasurer’s office, essentially amounting to a government-initiated bank run, it was not. So, OBL worked to educate the Treasurer’s staff on the problems this would cause and the potential to create a safety and soundness issue for many of the banks impacted.
Following those discussions, the Treasurer’s office revised the proposed changes which, while bad, are at least less awful than the original version. This was all done within one week and a half with OBL advocating to pause the changes and allow for more time to discus the impact of the changes and educate on the problems. However, those warnings were not heeded. Thus, the Treasurer’s office moved forward with the changes that banks have now seen and can be found HERE, some of which were effective in September.
Just as banks feel misled on this program and near whiplash on the abrupt and material changes, so too does OBL. With banker input, OBL is exploring all options to try to make changes to the revisions as put forward by the Treasurer’s office. It is understood that changes to the program must happen. However, program changes must be on a prospective and not retrospective basis. Changing the rules of the game after it is already in progress, in this case changing the parameters of the program after accounts have already been opened, is simply unacceptable.
OBL commits to continuing the fight and keeping members informed. Members can help by sharing an individual bank’s experience including the investments made, success stories for customers, and the negative impact the changes will have. OBL has made this easy by setting up a grassroots advocacy campaign where you can simply click THIS LINK which will allow you to send a communication to the Treasurer’s office, including senior staff. We encourage you to edit the form communication to personalize it and include your story. This makes it real for them. Additionally, OBL is working to secure additional opportunities to talk directly with the Treasurer and his staff to explain the issues the changes cause.
OBL will stay in the fight, and we ask that, if this is important to you, please join us. If you have any questions or are looking for other ways to engage on this issue, please contact the OBL Government Relations Team. Our contact information is below.
Government & External Relations
Don Boyd
VP|State Gov't Relations & General Counsel
(614) 340-7608