Security for Public Deposits Act Overview and

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Security for Public Deposits Act
Overview and Recent Developments
Department of the Treasury
April 21, 2010
1
Presentation Outline
•
Virginia Security for Public Deposits Act
•
Definitions
•
Program Overview
•
Responsibilities of Public Officials
•
Program Statistics
•
Recent Developments
•
Contacts
•
Fraud Prevention Disbursement Accounts
2
Virginia Security for Public Deposits Act
• The Virginia Security for Public Deposits Act (SPDA), Chapter 44 Title
2.2 was enacted by the 1973 General Assembly.
• The Virginia Security for Public Deposits Act Regulations were enacted
by the Treasury Board of the Commonwealth of Virginia on November
18, 1993.
• SPDA creates a single body of law to secure public deposits of Virginia
governmental entities.
• SPDA centralizes the procedures to secure public deposits at the state
level to promote efficiencies in administration.
3
Definitions
4
Public Deposit Defined
Section 2.2-4401 of the Code of Virginia
‘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: nonnegotiable 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.
5
Participants Defined
•
Qualified Public Depositories
"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
The terms “treasurer” and “public depositor” shall mean 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.
6
Public Depositors
Accounts established by Commonwealth of Virginia governmental entities
State
Courts
Cities
Counties
Towns
Other Political subdivisions
Accounts established by component units of the above
Agencies
Authorities
Boards
Departments
Funds
Institutions
Commissions
Committees
Officers
Schools (does not include activity fees)
7
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.
8
Treasury Board Duties, Powers and
Responsibilities








Make and enforce regulations to perform its functions under the SPDA
Fix terms and conditions by 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 to recover public funds
Report to public depositors any non-compliance with the Code or
Regulations by qualified depositories
Require additional collateral in excess of required collateral as it may
determine prudent
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
securities as collateral to be held in escrow for the Virginia Treasury Board.
•
Provides Treasury Board a perfected security interest in pledged collateral.
•
Empowers Treasury Board to make and enforce regulations to administer
SPDA.
•
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
•
In the event of a default, assesses each qualified public depository its
proportionate share of the loss of any uncollateralized and uninsured public
deposits 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.
11
Public Deposit Security Agreement

TREASURY BOARD
QUALIFIED PUBLIC
DEPOSITORY


ESCROW AGENT
12
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.
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
13
Public Depositor
SECURITY FOR PUBLIC DEPOSITS
SUMMARY OF DEPOSITORY STATUS
FOR THE MONTH ENDED NOVEMBER 2009
UNDERCOLLATERALIZED
DEPOSITORIES:
STATUS:
None
NEW QUALIFIED DEPOSITORIES:
WashingtonFirst Bank
Washington, DC
MERGED QUALIFIED DEPOSITORIES:
None
DEPOSITORIES WITH NAME CHANGES:
None
14
Summary of Qualified Depositories
As of November 2009
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

website link: http://www.trs.virginia.gov/documents/ops/Report.pdf
15
Audit Certification

In accordance with section 110 of the Virginia SPDA
Regulations
With the submission of the “Public Depository
Monthly Report” to the State Treasurer for the month
ending June 30, qualified public depositories shall
attach an annual certification from an independent
certified public accountant or their internal audit
department, attesting to the accuracy of the public
deposit balances reported to the State Treasurer
during their previous fiscal year.
16
Audit Certification

Recommended Audit Procedures



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Testing of the compilation and accuracy of public deposit
account balances reported
Calculation of average daily deposit balances reported
Omission of public deposit accounts
Accuracy in the calculation of FDIC for public deposit
accounts
17
Responsibilities of Public Officials
Responsibilities of Public Officials

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.
-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.)
19
Responsibilities of Public Officials

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.

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.
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Responsibilities of Public Officials



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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 locality’s funds remain with a qualified depository during
mergers, acquisitions and name changes.
To ensure locality’s depositories know that locality’s demand deposit
accounts and non-negotiable certificates of deposit are considered public
deposits under the SPDA and are collateralized accordingly.
To ensure locality’s 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 Treasurer’s office of any discrepancies between the statement and the
depositor’s records.
To notify locality’s depository of large deposits pending so the depository
can have sufficient collateral pledged to cover the deposit.
21
Program Statistics
22
Statistics as of September 30, 2009

Total Public Deposits
 $4,980,997,063
 •$3,406,834,368 (net of FDIC coverage)

Total Market Value Collateral
 $4,208,218,256

Total Required Collateral
 $2,594,631,522

Percentage of Public Deposits held by the six largest Public Depositories
 64%

Total Qualified Public Depositories
 121
Total banks required to pledge at 100% - 24
Total savings banks required to pledge at 110% - 1


23
Public Deposits by Bank Type
September 30, 2009
Bank Type
September 30, 2009
Total Public
Deposits
% of Total
September 30, 2009
Treasurer of VA
Accounts
% of Total
Virginia National Banks
197,531,263.95
5.80%
24,405,510.21
18.20%
Virginia State Chartered Bank
932,916,021.54
27.38%
28,064,281.62
20.92%
1,130,447,285.49
33.18%
52,469,791.83
39.12%
862,780,272.91
25.32%
58,291,169.08
43.46%
Out of State- State Chartered Banks
1,411,990,902.10
41.45%
23,363,738.12
17.42%
Total Out of State Banks
2,274,771,175.01
66.77%
81,654,907.20
60.88%
1,615,907.58
0.05%
3,406,834,368.08
100.00%
Total Virginia Banks
Out of State National Banks
Savings and Loans
Grand Total
24
0
134,124,699.03
0.00%
100.00%
Recent Developments
25
Need for Change
(Fall 2008)



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Continued weakness in banking sector
Concentration of Virginia public deposits-Six
banks hold 64% of public deposits
Only 50% collateral requirements for most
banks
Desire on the part of banks to opt out of
collateral pool, reducing their risk of loss
under the SPDA program
26
Change in Collateral Requirements

Increased collateral that banks holding public
deposits must pledge (effective February 2009)



public deposits (net of FDIC) 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%
27
2009 Legislative Action

Enactment of HB1761 by 2009 General Assembly

Allows banks that fully collateralize their public deposits to
“opt out” of the collateral pool and be responsible for only
securing their public deposits; no partial liability for the loss of
Virginia public deposits held by another bank that defaults

Implementation effective January 1, 2010, Treasury Board
established guidelines to allow banks to opt out of the pooled
arrangement
28
Collateralization of Public Deposits Effective
January 2010

Two choices:
 Pooled Method
 Dedicated Method

Annual Election Period
 November 1 thru December 1 for next calendar year

Savings banks can only use dedicated method
29
Pooled Method

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Liable for proportionate share of losses of uninsured and
uncollateralized public deposits held by SPDA bank in
default
Collateralization requirements same as those adopted by
Treasury Board in February 2009
100% collateralization of public deposits if ranked “below
average” by IDC bank rating service
Monthly reporting of public deposit balances
Monthly reporting and pricing of collateral
No change in types of eligible securities that can be
pledged as collateral
30
Pooled Method Collateral Calculation
Public Deposits (net of FDIC)
$500,000,000
Collateral Requirement
Tier 1
(50% of $50 million)
$ 25,000,000
Tier 2
(75% of $ 200 million)
$150,000,000
Tier 3
(100% of excess balances)
$250,000,000
Total
$425,000,000
31
Dedicated Method


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No contingent liability for losses of public deposits when
another qualified public depository fails.
Collateral requirements based on financial strength of each
banking institution
Financial strength based on ratings assigned by IDC bank
rating service
Weekly and monthly reporting of public deposit balances
Weekly and monthly reporting and pricing of securities held as
collateral
Mortgage-backed securities and non-Virginia municipal
securities valued at 80% of market value
Virginia municipal securities valued at 90% of market value
32
Dedicated Method Collateral Requirements

Banks rated superior – 105%

Banks rated excellent – 110%

Banks rated below average – 120%

Banks rated lowest rating tier – 130%
33
Dedicated Method Collateral Calculation
Public Deposits (net of FDIC)
$500,000,000
Collateral Requirement
Bank rated “Average” @ 110%
$550,000,000
34
Composition of Pooled and Opt-out Banks
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Pooled Banks
opt out banks
# of banks
$ deposited
35
2010 Legislative Action



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Legislation was introduced to amend Security
for Public Deposits Act for recent changes
Codifies the pooled and dedicated methods
Redefines “public deposit”
Simplifies payment of losses Sections 2.24403 and 2.2-4404
SB456 and HB1036
36
Public Deposits Defined-Effective July 2010

“Public deposit” means moneys held by a
public depositor who is charged with the duty
to receive or administer such moneys and is
acting in an official capacity, such moneys
being deposited in any of the following types
of accounts: non-negotiable time deposits,
demand deposits, savings deposits, or any
other transaction accounts.
37
Contacts
38
SPDA Treasury Contacts
(As of January 2010)
Thelma Ingle
Manager, Agency Accounting(804) 371-6009
[email protected]
Kristin Reiter
Director, Operations Division
[email protected]
E-mail:
(804) 225-3240
[email protected]
SPDA information on Treasury’s website:
www.trs.virginia.gov/Operations/operations.aspx
39
Department of the Treasury
Fraud Prevention Disbursement Accounts
40
Payee Match Positive Pay
Definition

The Payee Match Positive Pay service provides the
Commonwealth of Virginia (COV) with a high level of
protection against unauthorized disbursements and
fraudulent checks. Checks presented for payment,
including those presented for encashment in the branches,
are matched by check number, dollar amount and payee
name against COV’s check issue file. COV is then notified
of any checks that do not match this criteria and instructs
the bank to pay or return the item.
41
Payee Match Positive Pay
MAJOR FEATURES




COV issues and mails checks on behalf of each agency.
24 hours prior to the issuance, COV sends an electronic data
transmission file containing the check information to the bank.
The bank updates the check issue information to the teller
system several times per day, which assists in making sure the
most recent check data is available to the tellers for
verification.
The bank matches the paid (posted) checks against the issued
checks and notifies the COV of unmatched items via an
Internet-based bank information reporting service.
42
Payee Match Positive Pay
How It Works

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COV’s check-issue information is electronically transmitted to the bank at
least 24 hours prior to the issuing of checks.
Any manual check issues or cancellations are entered via the bank’s
Internet-based information reporting service up until the end of each
business day.
As checks are presented for payment, the bank matches the check number,
amount and payee against the issue file to identify unauthorized items.
Notification of any checks that do not match COV’s issue information is
provided through the bank’s Internet-based information reporting service,
whereupon COV indicates its decision to accept or return each check
online. Images of the checks in question are provided.
The pay/no pay decision must be made by 2 p.m. ET.

If a pay or return decision is not made by the daily cut-off time, exceptions are
either paid or returned based on COV’s pre-determined default decision.
43
Payee Match Positive Pay
Benefits



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COV is protected against unauthorized check
disbursements.
Reduces research time and expense as only
authorized checks are paid.
Reduces potential legal expenses for COV.
Helps control/reduce audit costs associated with
fraudulent checks.
44
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