Security for Public Deposits Act Presentation to Treasurers Association of Virginia and Commissioner

1
Security for Public Deposits Act
Presentation to Treasurers Association of
Virginia and Commissioners of the Revenue
Association of Virginia

• Manju S. Ganeriwala
• State Treasurer
• January 26, 2009

2
Presentation Outline

• I. Virginia Security for Public Deposits Act
• II. Definitions
• Program Overview
• Statutes Related to SPDA and Public Officials
• Recent Developments
• Statistics and Contacts

3
Virginia Security for Public Deposits Act

• The Virginia Security for Public Deposits Act
  (SPDA) was enacted by the 1973 General Assembly
  as Chapter 23 of Title 2.1, Code of Virginia
  (1950), as amended. A recodification of the Code
  of Virginia placed SPDA under Chapter 44, Title
  2.2.
• SPDA created a single body of law establishing a
  uniform method to secure public funds on deposit
  in financial institutions through the pledge of
  securities as collateral. SPDA centralized the
  procedures and methods to secure public deposits
  to promote efficiencies in administration
  throughout the Commonwealth.
• SPDA does not, of itself, require security for
  public deposits. All deposits that are required
  to be secured, whether by statute, by charter
  provision, or by the custodian of the funds, must
  be secured pursuant to SPDA.
• The Virginia Security for Public Deposits Act
  Regulations were enacted by the Treasury Board of
  the Commonwealth of Virginia on November 18,
  1993.

4
Definitions

5
Public Deposits Defined

Section 2.2-4401 of the Code of Virginia provides
that public deposit means moneys of the
Commonwealth or of any county, city, town or
other political subdivision thereof, including
moneys of any commission, institution, committee,
board or officer of the foregoing and any state,
circuit, county or municipal court, which moneys
are deposited in any qualified public depository
in any of the following types of accounts
non-negotiable or registered time deposits,
demand deposits, savings deposits, and any other
transaction accounts, and security for such
deposit is required by other provisions of law,
or is required due to an election of the public
depositor.
6
Participants Defined

• Qualified Public Depository
• Qualified public depository means any national
  banking association, federal savings and loan
  association or federal savings bank located in
  Virginia, any bank, trust company or savings
  institution organized under Virginia law, or any
  state bank or savings institution organized under
  the laws of another state located in Virginia
  that receives or holds public deposits that are
  secured pursuant to this chapter.
• Located in Virginia means having a main office
  or branch office in the Commonwealth where
  deposits are accepted, checks are paid, and money
  is lent.
• Treasurer and Public Depositors
• Treasurer and public depositor means the
  State Treasurer, a county, city or town treasurer
  or director of finance or similar officer and the
  custodian of any other public deposits secured
  pursuant to this chapter.

7
Public Depositors

Accounts established by Commonwealth of Virginia
governmental entities State Courts Cities Towns
Counties Other Political Subdivisions Accounts
established by component units of the
above Agencies Departments Authorities Funds Bo
ards Institutions Commissions Officers Committee
s Schools (does not include activity fees)
8
Participants Defined

• Treasury Board
• The Treasury Board of the Commonwealth created
  by Section 2.2-2415 of the Code of Virginia
  consists of the State Treasurer, the State
  Comptroller, the State Tax Commissioner, and four
  citizen members appointed by the Governor.
• Escrow Agent
• An escrow agent is selected by a qualified
  public depository for the purpose of holding
  collateral pledged to the Treasury Board under
  SPDA and must meet the selection criteria
  outlined in Section 140 of the SPDA regulations.

9
Program Overview

10
How Does SPDA Work?

• Creates a single body of law to secure Virginia
  public deposits.
• Requires qualified public depositories to secure
  public deposits by pledging collateral to be held
  in escrow for the Virginia Treasury Board.
• Creates a pooled collateral method to secure
  public deposits among qualified public
  depositories
• mutuality of responsibility among depositories
• cross guarantee among depositories
• 50 minimum collateral requirement
• Provides Treasury Board a perfected security
  interest in pledged collateral.
• Empowers Treasury Board to make and enforce
  regulations to administer SPDA.
• In the event of a default, assesses each
  qualified public depository its proportionate
  share of the loss of any uncollateralized and
  uninsured public deposit held by the defaulting
  depository based on the ratio that each
  depositorys average public deposits bear to the
  average total of all public deposits for the
  preceding twelve months.

11
Public Deposit Security Agreement

• Execution required before public depository can
  accept or retain any public deposit.
• Tri-party agreement.
• Perfected security interest to the collateral by
  the Treasury Board.

TREASURY BOARD
QUALIFIED PUBLIC DEPOSITORY
ESCROW AGENT
12
Treasury Board Duties, Powers and
Responsibilities

• Enforce regulations
• Fix terms and conditions under which public
  deposits may be held
• Determine securities that are eligible to be held
  as collateral
• Ensure that all Code of Virginia and SPDA
  Regulations requirements are met by each
  qualified depository
• Establish escrow agent criteria
• In case of default or insolvency, take action as
  deemed advisable in accordance with program
  requirements
• Report to public depositors any non-compliance
  with the Code or Regulations by qualified
  depositories
• Monitor the financial condition of all public
  depositories and require collateral adjustments
  as warranted

13
Reporting

• Treasury Board
• Summary of Depository Status Report
• Monthly and Quarterly Statistics
• Monthly Qualified Depository Listing

• Escrow Agent
• Monthly securities report
• Confirmations of deposits,
• substitutions and
• collateral withdrawals

• Qualified Public
• Depository
• Monthly Depository Report
  
• List of Public Depositors
• Quarterly Depositor Notice

Public Depositor
14
SECURITY FOR PUBLIC DEPOSITSSUMMARY OF
DEPOSITORY STATUSFOR THE MONTH ENDED NOVEMBER
2008

UNDERCOLLATERALIZED STATUS DEPOSITORIES Bank
of Essex First time undercollateralized in a
Tappahannock, VA twelve-month period.
Additional collateral pledged on December
12, 2008. NEW QUALIFIED DEPOSITORIES None
MERGED QUALIFIED DEPOSITORIES Bay Community
Bank Merged into Union Bank and Trust Bowling
Green, VA Bowling Green, VA DEPOSITORIES WITH
NAME CHANGES None
15
Summary of Qualified DepositoriesAs of November
30, 2008


16
Statutes Related to SPDA and Public Officials


17
Statutes Requiring Security for Public Deposits

• Section 58.1-3158. Duties of treasurers
• -No treasurer shall permit any public deposit to
  be deposited with any depository unless it is a
  qualified public depository as defined in
  Section 2.2-4401. All such deposits shall be
  secured pursuant to the Virginia Security for
  Public Deposits Act (Section 2.2-4400 et seq.)
• Section 58.1-3177.B Duties of the clerk deposit
  of funds investment of funds failure to pay
  out.
• -B. All moneys received by the clerk shall be
  deposited intact as soon as practical and secured
  in accordance with the Virginia Security for
  Public Deposits Act (Section 2.2-4400 et seq.)

18
Statutes Requiring Security for Public Deposits

• Section 2.2-4407. Deposit of public funds in
  qualified public depository mandatory.
• No public deposit that is required to be secured
  pursuant to this chapter shall be made except in
  a qualified public depository.
• Section 2.2-4408. Authority to deposit public
  funds.
• A. All treasurers and public depositors are
  hereby authorized to deposit funds under their
  control in qualified public depositories securing
  public deposits pursuant to this chapter.
• B. Local officials handling public funds in the
  Commonwealth may not require from a depository
  institution any pledge of collateral for their
  deposits in such institution which is in excess
  of the requirements of this chapter.

19
Statutes Requiring Security for Public Deposits

• Section 2.2-4410. Liability of treasurers or
  public depositors.
• -When deposits are made in accordance with this
  chapter no treasurer or public depositor shall be
  liable for any loss thereof resulting from the
  failure or default of any depository in the
  absence of negligence, malfeasance, misfeasance,
  or nonfeasance on his part or on the part of his
  assistants or employees.

20
Responsibility of Public Officials

• To ensure public deposits are deposited in a
  qualified public depository as defined in
  Section 2.2-4401 of the Code of Virginia.
• Ensure that localitys funds remain with a
  qualified depository during mergers, acquisitions
  and name changes.
• To ensure localitys depositories know that
  localitys demand deposit accounts and
  non-negotiable certificates of deposit are
  considered public deposits under the SPDA and are
  collateralized accordingly.
• To ensure localitys depositories comply with the
  SPDA by reviewing the Summary of Depository
  Status Report (available at www.trs.virginia.gov
  in the Operations Division).
• To review quarterly public depositor report (bank
  statements) and notify the State Treasurers
  office of any discrepancies between the statement
  and the depositors records.
• To notify localitys depository of large deposits
  pending so the depository can have sufficient
  collateral pledged to cover the deposit.

21
Recent Developments


22
Need for Change

• Instability in financial markets
• Concentration of Virginia public deposits
• Only 50 collateral requirements for most banks

23
Treasury Board Action

• Received public comments (Oct-Dec 2008).
• Increased collateral that banks holding public
  deposits must pledge (effective February 2009).
• public deposits (in total for each bank) under
  50 million collateralized at 50
• public deposits between 50 million and 250
  million collateralized at 75
• public deposits over 250 million collateralized
  at 100

24
Treasury Board Action

• Conduct a study of the liquidity and
  marketability of the securities currently
  accepted as collateral by March 31, 2009.
• Support legislation giving Treasury Board the
  power to establish guidelines to permit banks
  that are required to, or elect to, fully
  collateralize their public deposits to opt out of
  the collateral pool (HB 1761).

25
Statistics and Contacts

26

• Statistics as of September 30, 2008
• Total Public Deposits all Public Depositories
• 4,714,112,100
• Total Market Value Collateral all Public
  Depositories
• 3,321,353,279
• Total Required Collateral all Public Depositories
• 2,479,949,864
• Percentage of Public Deposits held by the 5
  largest Public Depositories
• 68
• Total Qualified Public Depositories
• 119

27
SPDA Treasury Contacts(As of January 2009)

Thelma Ingle Manager, Agency Accounting (804)
371-6009 Thelma.Ingle_at_trs.virginia.gov Kristin
Reiter Director, Operations Division (804)
225-3240 Kristin.Reiter_at_trs.virginia.gov E-mail
SPDAMail_at_trs.virginia.gov SPDA information on
Treasurys website www.trs.virginia.gov/operatio
ns/operations.asp