Security for Public Deposits Act Security for Public Deposits Act Presentation to Treasurers’ Association of Virginia Presentation to Treasurers’ Association of Virginia

and Commissioners of the Revenue Association of Virginiaand Commissioners of the Revenue Association of Virginia

Manju S. GaneriwalaManju S. GaneriwalaState TreasurerState Treasurer

January 26, 2009January 26, 2009

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Presentation OutlinePresentation Outline

I. Virginia Security for Public Deposits Act

II. Definitions

III. Program Overview

IV. Statutes Related to SPDA and Public Officials

V. Recent Developments

VI. Statistics and Contacts

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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.

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DefinitionsDefinitions

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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.

Public Deposits DefinedPublic Deposits Defined

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Participants DefinedParticipants 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.

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Public DepositorsPublic 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

Boards Institutions

Commissions Officers

Committees Schools (does not include activity fees)

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Participants DefinedParticipants Defined

• Treasury BoardThe 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 AgentAn 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.

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Program OverviewProgram Overview

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How Does SPDA Work?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 depository’s average public deposits bear to the average total of all public deposits for the preceding twelve months.

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Public Deposit Security AgreementPublic Deposit Security Agreement

Execution required Execution required before public depository before public depository can accept or retain any can accept or retain any public deposit.public deposit.

Tri-party agreement.Tri-party agreement.

Perfected security Perfected security interest to the collateral interest to the collateral by the Treasury Board.by the Treasury Board.

TREASURY BOARDQUALIFIED PUBLIC

DEPOSITORY

ESCROW AGENT

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Treasury Board Duties, Powers and Treasury Board Duties, Powers and ResponsibilitiesResponsibilities

Enforce regulationsEnforce regulations Fix terms and conditions under which public deposits may be Fix terms and conditions under which public deposits may be

heldheld Determine securities that are eligible to be held as collateralDetermine securities that are eligible to be held as collateral Ensure that all Ensure that all Code of VirginiaCode of Virginia and SPDA Regulations and SPDA Regulations

requirements are met by each qualified depositoryrequirements are met by each qualified depository Establish escrow agent criteriaEstablish escrow agent criteria In case of default or insolvency, take action as deemed advisable In case of default or insolvency, take action as deemed advisable

in accordance with program requirementsin accordance with program requirements Report to public depositors any non-compliance with the Report to public depositors any non-compliance with the CodeCode

or Regulations by qualified depositoriesor Regulations by qualified depositories Monitor the financial condition of all public depositories and Monitor the financial condition of all public depositories and

require collateral adjustments as warrantedrequire collateral adjustments as warranted

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ReportingReporting

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 PublicDepository

• Monthly Depository Report

• List of Public Depositors

• Quarterly Depositor Notice

Public Depositor

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SECURITY FOR PUBLIC DEPOSITSSECURITY FOR PUBLIC DEPOSITSSUMMARY OF DEPOSITORY STATUSSUMMARY OF DEPOSITORY STATUS

FOR THE MONTH ENDED NOVEMBER 2008FOR 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 TrustBowling Green, VA Bowling Green, VA

DEPOSITORIES WITH NAME CHANGES:

None

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Summary of Qualified DepositoriesAs of November 30, 2008

Bank Name SPDA contact location

Access National Bank Reston, VA

Alliance Bank Chantilly,VA

American National Bank and Trust Company Danville,VA

Bank of America Dallas, TX

Bank of Botetourt Buchanan, VA

Bank of Charlotte County Phenix, VA

Bank of Clarke County Berryville, VA

Bank of Essex Tappahannock, VA

Bank of Fincastle Fincastle, VA

Bank of Floyd Floyd, VA

Bank of Georgetown Washington, DC

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Statutes Related to SPDA and Public OfficialsStatutes Related to SPDA and Public Officials

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Statutes Requiring Security for Public DepositsStatutes Requiring Security for Public Deposits

Section 58.1-3158. Duties of treasurersSection 58.1-3158. Duties of treasurers-No treasurer shall permit any public deposit to be deposited -No treasurer shall permit any public deposit to be deposited with any depository unless it is a “qualified public depository” with any depository unless it is a “qualified public depository” as defined in Section 2.2-4401. All such deposits shall be as defined in Section 2.2-4401. All such deposits shall be secured pursuant to the Virginia Security for Public Deposits secured pursuant to the Virginia Security for Public Deposits Act (Section 2.2-4400 et seq.)Act (Section 2.2-4400 et seq.)

Section 58.1-3177.B Duties of the clerk; deposit of funds; Section 58.1-3177.B Duties of the clerk; deposit of funds; investment of funds; failure to pay out.investment of funds; failure to pay out.-B.-B. All moneys received by the clerk shall be deposited All moneys received by the clerk shall be deposited intact as soon as practical and secured in accordance with the intact as soon as practical and secured in accordance with the Virginia Security for Public Deposits Act (Section 2.2-4400 et Virginia Security for Public Deposits Act (Section 2.2-4400 et seq.)seq.)

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Statutes Requiring Security for Public DepositsStatutes Requiring Security for Public Deposits

Section 2.2-4407. Deposit of public funds in qualified public Section 2.2-4407. Deposit of public funds in qualified public depository mandatory.depository mandatory.No public deposit that is required to be secured pursuant to this No public deposit that is required to be secured pursuant to this chapter shall be made except in a qualified public depository.chapter shall be made except in a qualified public depository.

Section 2.2-4408. Authority to deposit public funds.Section 2.2-4408. Authority to deposit public funds.A. All treasurers and public depositors are hereby authorized to A. All treasurers and public depositors are hereby authorized to deposit funds under their control in qualified public depositories deposit funds under their control in qualified public depositories securing public deposits pursuant to this chapter.securing public deposits pursuant to this chapter.B. Local officials handling public funds in the Commonwealth B. Local officials handling public funds in the Commonwealth may not require from a depository institution any pledge of may not require from a depository institution any pledge of collateral for their deposits in such institution which is in excess collateral for their deposits in such institution which is in excess of the requirements of this chapter.of the requirements of this chapter.

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Statutes Requiring Security for Public DepositsStatutes Requiring Security for Public Deposits

Section 2.2-4410. Liability of treasurers or public Section 2.2-4410. Liability of treasurers or public depositors.depositors.

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

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Responsibility of Public OfficialsResponsibility of Public Officials

To ensure public deposits are deposited in a “qualified public To ensure public deposits are deposited in a “qualified public depository” as defined in Section 2.2-4401 of the depository” as defined in Section 2.2-4401 of the Code of VirginiaCode of Virginia..

Ensure that locality’s funds remain with a qualified depository during Ensure that locality’s funds remain with a qualified depository during mergers, acquisitions and name changes.mergers, acquisitions and name changes.

To ensure locality’s depositories know that locality’s demand deposit To ensure locality’s depositories know that locality’s demand deposit accounts and non-negotiable certificates of deposit are considered accounts and non-negotiable certificates of deposit are considered public deposits under the SPDA and are collateralized accordingly.public deposits under the SPDA and are collateralized accordingly.

To ensure locality’s depositories comply with the SPDA by reviewing To ensure locality’s depositories comply with the SPDA by reviewing the Summary of Depository Status Report (available at the Summary of Depository Status Report (available at www.trs.virginia.govwww.trs.virginia.gov in the Operations Division). in the Operations Division).

To review quarterly public depositor report (bank statements) and To review quarterly public depositor report (bank statements) and notify the State Treasurer’s office of any discrepancies between the notify the State Treasurer’s office of any discrepancies between the statement and the depositor’s records.statement and the depositor’s records.

To notify locality’s depository of large deposits pending so the To notify locality’s depository of large deposits pending so the depository can have sufficient collateral pledged to cover the deposit.depository can have sufficient collateral pledged to cover the deposit.

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Recent DevelopmentsRecent Developments

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Need for ChangeNeed for Change

Instability in financial marketsInstability in financial markets

Concentration of Virginia public depositsConcentration of Virginia public deposits

Only 50% collateral requirements for most banksOnly 50% collateral requirements for most banks

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Treasury Board ActionTreasury Board Action

Received public comments (Oct-Dec 2008).Received public comments (Oct-Dec 2008).

Increased collateral that banks holding public deposits Increased collateral that banks holding public deposits must pledge (effective February 2009).must pledge (effective February 2009).

– public deposits (in total for each bank) under $50 public deposits (in total for each bank) under $50 million collateralized at 50%million collateralized at 50%

– public deposits between $50 million and $250 million public deposits between $50 million and $250 million collateralized at 75%collateralized at 75%

– public deposits over $250 million collateralized at public deposits over $250 million collateralized at 100%100%

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Treasury Board ActionTreasury Board Action

Conduct a study of the liquidity and marketability of the Conduct a study of the liquidity and marketability of the securities currently accepted as collateral by March 31, securities currently accepted as collateral by March 31, 2009.2009.

Support legislation giving Treasury Board the power to Support legislation giving Treasury Board the power to establish guidelines to permit banks that are required to, or establish guidelines to permit banks that are required to, or elect to, fully collateralize their public deposits to opt out elect to, fully collateralize their public deposits to opt out of the collateral pool (HB 1761).of the collateral pool (HB 1761).

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Statistics and ContactsStatistics and Contacts

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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

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SPDA Treasury ContactsSPDA Treasury Contacts(As of January 2009)(As of January 2009)

Thelma IngleManager, Agency Accounting (804) 371-6009Thelma.Ingle@trs.virginia.gov

Kristin ReiterDirector, Operations Division (804) 225-3240Kristin.Reiter@trs.virginia.gov

E-mail: SPDAMail@trs.virginia.gov

SPDA information on Treasury’s website:www.trs.virginia.gov/operations/operations.asp