Money Management Council, Administration

Rule R628-13

Collateralization of Public Funds

Notice of Proposed Rule

(Amendment)

DAR File No.: 35204
Filed: 08/31/2011 04:33:10 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The definition of deposits in this rule is being changed to remove repurchase agreements with qualified depositories as deposits if the repurchase contract and confirmation meet FDIC criteria that put them in the category of investments rather than deposits.

Summary of the rule or change:

The definition of deposits has been changed to allow for repurchase agreements with qualified depositories to not be considered to be deposits of a qualified depository if the repurchase agreement meets FDIC requirements to not be considered as such.

State statutory or constitutional authorization for this rule:

• Subsection 51-7-18.1(5)

Anticipated cost or savings to:

the state budget:

There are no costs or savings to the state in the implementation of this change.

local governments:

This rule affects qualified depositories and not local governments so there are no costs or savings to local governments.

small businesses:

This rule affects qualified depositories and not small businesses, so there are no costs or savings for small businesses.

persons other than small businesses, businesses, or local governmental entities:

Most qualified depositories do not use repurchase agreements however, if they do, their confirmation and contract procedures should already meet FDIC criteria. If a qualified depository should need to change their confirmation, costs should be minimal to do so.

Compliance costs for affected persons:

Compliance costs would be none to minimal if a qualified depository needs to change their confirmation or contract.

Comments by the department head on the fiscal impact the rule may have on businesses:

There should be no fiscal impact on businesses.

William W. Wallace, Chair

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Money Management Council
Administration
Room 180 UTAH STATE CAPITOL COMPLEX
350 N STATE ST
STE 180
SALT LAKE CITY, UT 84114

Direct questions regarding this rule to:

• Ann Pedroza at the above address, by phone at 801-538-1883, by FAX at 801-538-1465, or by Internet E-mail at apedroza@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

10/17/2011

This rule may become effective on:

10/24/2011

Authorized by:

William Wallace, Chair

R628. Money Management Council, Administration.

R628-13. Collateralization of Public Funds.

R628-13-1. Authority.

This rule is issued pursuant to Sections 51-7-18.1(5).

 

R628-13-2. Scope.

This rule applies to all qualified depositories required to pledge collateral security for public funds.

 

R628-13-3. Purpose.

The purpose of this rule is to establish the requirements for pledging of collateral security to insure that public treasurers have a perfected security interest in the collateral security pledged, to define the conditions under which the Council may require the pledging of collateral security in lieu of relinquishment of deposits in excess of the maximum amount a qualified depository may hold under the Money Management Act and the rules of the Council, and to impose restrictions on a qualified depository which is required to pledge collateral security for the public deposits which it holds.

 

R628-13-4. Definitions.

A. Deposits means balances due to persons having an account at the qualified depository institution whether in the form of a transaction account, savings account, share account, or certificate of deposit and repurchase agreements , unless the repurchase agreement contract and confirmation fully meet the FDIC criteria as described in 12 CFR Part 360. [ other than] Q[q]ualifying repurchase agreements as defined in Section 51-7-3 are not deposits of a qualified depository institution.

B. Designated trustee means the trustee selected to serve as the agent of the State Treasurer to hold and administer collateral security pledged for public funds.

C. Eligible collateral means obligations of or fully guaranteed by the United States or its agencies as to principal and interest, a segregated earmarked deposit account, or notes, drafts, bills of exchange or bankers' acceptances that are eligible for rediscount or purchase by a federal reserve bank, obligations of the State of Utah or any of its political subdivisions, and readily marketable bonds, notes or debentures.

D. Excess deposit means that portion of the public funds held on deposit with a qualified depository by public treasurers which exceeds the most recently adopted maximum amount of public funds allowed pursuant to the Money Management Act and the rules of the Money Management Council as of the effective date of an order issued by the Commissioner of Financial Institutions pursuant to Section 51-7-18.1(6).

E. Market value means the bid or closing price listed for financial instruments in a regularly published listing or an electronic reporting service or, in the case of obligations which are not regularly traded, the bid price received from at least one registered securities broker/dealer.

F. Readily marketable bonds, notes or debentures means obligations in the form of a bond, note, or debenture rated in one of the three highest ratings of a nationally recognized rating agency; it does not include investments which are predominantly speculative in nature.

 

R628-13-5. General Rule.

A. Conditions Under Which Collateral Will Be Allowed

(1) The Money Management Council may vote to allow collateral security to be pledged to secure excess deposits when a qualified depository has accepted and holds public funds in excess of its public funds allotment.

(2) If the public funds allotment is reduced to one times capital, the Money Management Council may vote to allow collateral security to be pledged to secure excess deposits. The qualified depository will not be precluded or prohibited from accepting, renewing or maintaining deposits of public funds if the total amount of deposits from each public treasurer does not exceed the applicable federal deposit insurance limit.

(3) If the public funds allotment is reduced to zero, the qualified depository will be required to pledge sufficient eligible collateral with the state treasurer's designated trustee for all uninsured deposits. The qualified depository is not precluded or prohibited from accepting, renewing or maintaining deposits of public funds when the total amount of all deposits from each public treasurer does not exceed the applicable federal deposit insurance limit.

After the effective date of any order requiring the pledging of collateral, the qualified depository may not accept, receive or renew uninsured deposits of public funds.

(4) If the amount of capital as defined in R628-11-4-A. is zero or less, the institution is no longer a qualified depository and must relinquish all deposits of public funds within 15 days of the effective date of any order issued by the Commissioner of Financial Institutions requiring relinquishment.

(5) The requirements for pledging of collateral set forth in this rule shall remain in effect until the public funds allotment has been increased to the statutory maximum or 12 months, whichever occurs first. If at the end of the 12 month period the qualified depository institution's public funds allotment has not been increased to the statutory maximum, the qualified depository shall immediately relinquish all excess deposits.

B. Delivery of Collateral

Within 15 days of the effective date of an order requiring collateralization of excess deposits in accordance with the provisions of this rule, a qualified depository shall deliver to the state treasurer or the designated trustee eligible collateral sufficient to meet the statutory collateralization requirements and shall execute a pledge agreement and trust indenture as required by the state treasurer. Collateral delivered to the state treasurer or the designated trustee may not be released until the state treasurer has received written confirmation from the Commissioner of Financial Institutions that the excess deposits have been surrendered or that the qualified depository is eligible to accept, receive and hold public funds without collateralization.

 

KEY: public investments, collateral, trustees, financial institutions

Date of Enactment or Last Substantive Amendment: [August 10, 2010]2011

Notice of Continuation: November 7, 2010

Authorizing, and Implemented or Interpreted Law: 51-7-18.1(5)