The Public Deposit Protection Act. Jenifer Waller Colorado Bankers Association

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1 The Public Deposit Protection Act Jenifer Waller Colorado Bankers Association

2 PDPA Legislative declaration. (1) The general assembly hereby declares that the purpose of this article is to serve the taxpayers and the citizens of Colorado by establishing standards and procedures to ensure the preservation and protection of all public funds held on deposit by a bank that are either not insured by or are in excess of the insured limits of federal deposit insurance, and to ensure the expedited repayment of such funds in the event of default and subsequent liquidation of a bank which holds such deposits

3 Must deposit with an eligible depository (bank) currently 109 in Colorado locations all across the state Must be FDIC insured ($250,000) Approved by the Division of Banking & comply with all regulations and reporting requirements

4 A bank's designation and certification as an eligible public depository may be revoked, suspended, or placed under restriction for any one of the following: A. Failure to maintain adequate capital standards. B. Failure to provide information requested by any employee of the Division of Banking for purposes of monitoring the safety of public deposits. C. Failure to meet reporting requirements established under the Public Deposit Protection Act or Public Deposit Protection Act Banking Board Rules, Policies, Procedures, or Orders. D. Failure to comply with any other provision of the Public Deposit Protection Act, Public Deposit Protection Act Banking Board Rules, Policies, Procedures, or Orders.

5 Must have and maintain a minimum level of total capital to risk-weighted assets in excess of 8%. When that ratio falls to 5% or below, the eligible public depository shall submit a plan and timeframe for eliminating its public deposits. Higher than minimum capital ratios may be required for: 1. A newly chartered bank; 2. A bank receiving special supervisory attention; 3. A bank which has, or is expected to have, losses resulting in capital inadequacy; 4. A bank having a high proportion of off-balance sheet risks, 5. A bank that is growing rapidly, either internally or through acquisitions; or 6. A bank that may be adversely affected by the activities or condition of its holding company, affiliate(s), or other persons or institutions including chain banking organizations

6 Procedures when event of default occurs When the banking board has determined that an eligible public depository has experienced an event of default, the banking board shall proceed in the following manner: The board shall seize and take possession of all eligible collateral belonging to or held on behalf of the defaulting depository from wherever such eligible collateral is held.

7 A depository shall not accept any additional uninsured public deposits or renew any uninsured public deposits beyond the original maturity dates: 1. If the depository s total capital to risk-weighted asset ratio is below 6 percent; or 2. If the depository has received a final report of examination or other notice that the depository has been assigned a composite CAMELS rating of 5. A depository shall eliminate all public deposits in an orderly manner, under a plan and a timeframe approved by the Banking Board: 1. If the depository s total capital to risk-weighted asset ratio is equal to or less than 5 percent; or 2. If the depository has received a final report of examination or other notice that the depository has been assigned a composite CAMELS rating of 5.

8 Collateralization The obligation or instrument is characterized by attributes of: safety, liquidity, and soundness shall be marketable or convertible into cash market value verified at least monthly

9 Approved Eligible Collateral Instruments and Obligations Any security assigned a rating of AAA to BBB by Standard & Poor s or Fitch s Investors Services or any security assigned a rating of AAA to BAA by Moody s Investors Service. The following are approved as eligible collateral: U.S. Treasury Bills; Treasury Notes; Treasury Bonds; Farm Credit System wide Debentures, Federal Home Loan Bank Debentures Federal National Mortgage Association Debentures Federal Home Loan Mortgage Corporation

10 Approved Eligible Collateral Instruments and Obligations, continued Public unit defined in Section (13), C.R.S., and "political subdivision is defined in Section (10), C.R.S. Obligations of any public unit or any political subdivision in Colorado. Promissory notes secured by first lien mortgages that are: Open-end and closed-end loans, including reverse mortgages, secured by real estate as evidenced by mortgages Nonfarm property containing 1-to-4 dwelling units (including vacation homes) or more than four dwelling units if each is separated from other units by dividing walls that extend from ground to roof (e.g., row houses, townhouses, or the like)

11 Other Approved Eligible Collateral Instruments and Obligations Money market funds, the portfolios of which consist entirely of United States Governmentissued or United States Government Agency-issued or Instrumentality-issued short-term securities with maximum maturities of thirteen months Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation conduit collateralized mortgage obligations except that interest only and principal only collateralized mortgage obligations shall not be pledged Commercial paper rated at least "A1" or "P1" in quality at the time of pledging by Moody's and Standard & Poor's Acceptances of banks and negotiable certificates of deposit of banks chartered in the United States if, at the time the security is purchased, the issuing bank or its parent holding company has obtained a long-term deposit or debt rating of at least "A" in quality by one or more nationally-recognized organizations which regularly rate such obligations, but any investment in acceptances of banks or negotiable certificates of deposit shall be limited to that issued by financial institutions organized and operating within the United States, and having a net worth in excess of two hundred fifty million dollars Surety bonds

12 Where collateral is held Any federal reserve bank, or any branch thereof, any depository trust company, or any bank acting as custodian of eligible collateral, approved by the Banking Board must comply with: The Public Deposit Protection Act, and all Banking Board Rules, Policies, Procedures, and Orders; The Banking Board's safekeeping procedures (This includes, but is not limited to, issuing Joint Custody Receipts or other documentation required by the Division of Banking to evidence the Banking Board's security interest in the pledged collateral.); Provide any information requested by the Banking Board, Allow State Bank Examiners to conduct on-site examinations to determine compliance with the Act and corresponding Banking Board Rules, Policies, Procedures, and Orders;

13 PDPA - Custodian Information As events unfold in our financial system, many custodians of public funds have expressed concern about the safety of the money entrusted to them. With regard to deposits made in bank accounts, the Public Deposit Protection Act (PDPA) requires that eligible depository banks pledge assets to the Division of Banking for deposits that exceed the amount insured by the FDIC. Banks must pledge collateral having a market value equal to or greater than 102 percent of the uninsured deposits at all times most hold higher levels of collateral. The Division approves all pledges and releases of collateral, and the pledged items are maintained by an escrow institution or at the Division. An independent service provides monthly market values for securities. To ensure that items pledged under the PDPA are liquid and safe, some collateral is valued at a discount, or haircut, from the market or par value. The items eligible for pledging are listed in Banking Board Rule PDP3 and Banking Board Rule PDP4 sets forth discounts as applicable. Eligible public depository banks are examined by the Division of Banking, and audited annually by an independent auditor. Capital levels are monitored. Should conditions warrant it, eligible banks may be required to pledge additional collateral or divest of public deposits. Custodians may contact the Division of Banking to make sure their deposits are being reported. Additional information on deposit insurance is available at the FDIC web site at

14 Amount of collateral Risk-weighted Capital equal to or greater than 8% pledge 102% of uninsured public deposits Risk-weighted Capital less than 8% equal but or greater than 7% pledge 120% of uninsured public deposits Risk-weighted Capital less than 7% but equal or greater than 6% pledge 140% of uninsured public deposits Risk-weighted Capital less than 6% pledge 160% of uninsured public deposits Regardless of Capital a CAMELS rating of 4 shall pledge in excess of 120% Camels rating of 5 pledge 160% and not accept any further public deposits and establish a plan to eliminate all public funds in an orderly manner approved by the Banking Board

15 Reporting and Examinations Depositories must report all public deposits and the highest single day aggregate balance of public funds. Have an independent exam/audit of PDPA compliance Onsite exam from the Division of Banking

16 Protect and Preserve Frustration in current environment of low rates of return We share that frustration Should PDPA be repealed NO it is doing its job Colorado Industrial Bank Guarantee Fund, State ran fund - depositors lost $ received about.80 per dollar

17 Instructions: CDPHE requires an original signed copy with Italic Text replaced. Bank and Assignor may also require original signed copies. Note: No individual certificate of deposit or the total of all deposits of the assignor at any individual savings institution should exceed $250,000 or the maximum insurable amount by F.D.I.C. or F.S.L.I.C. PART I (To be completed by Assignor) The undersigned assignor (the Assignor ), as responsible operator or owner for (Name and Address of Facility) ( the Facility ), does hereby assign, transfer to, and pledge to the Director of the Hazardous Materials and Waste Management Division of the Colorado Department of Public Health and Environment ( CDPHE ) all right, title, and interest in and to the Certificate of Deposit issued by or carried with, and its successors or assigns, with an office located at (Address and Telephone Number of Bank or Savings Institution) and identified as Certificate of Deposit # ( CD ) including its principal amount and any interest that will accrue or already has accrued on the CD ( Assignment ). This Assignment is binding on Assignor, its/his/her/their heirs, devises, personal representatives, successors, and assigns. PURPOSE This Assignment is made as, and shall constitute, collateral security for closure, post-closure, and corrective action costs associated with the Facility in accordance with section , C.R.S. and 6 CCR , 1.8. Pursuant to Section 1.8.3, 6 CCR , the aforesaid costs shall be updated every five (5) years and adjusted annually to account for inflation or deflation by using the implicit price deflator for the gross domestic product or its successor as published by the U.S. Department of Commerce ( Cost Estimate ).

18 Shop around What services do you need now - what will you need in the future? Visit with several banks Electronic banking opens up the entire state to you Really take a look at services you don t use now that my be beneficial Account Analysis Account Reconcilement Automated Clearing House (ACH) Business Online Banking Business Bill Payment Certificate of Deposit Account Registry Service (CDARS) Check Imaging Controlled Disbursement Insured Cash Sweep (ICS) Investments Lockbox Positive Pay OnSite Express Deposit SM Sweep Arrangement

19 Thank You Colorado Bankers Association One Sherman Place 140 East 19 th Avenue, #400 Denver, CO Phone: Fax: (consumer information) Colorado Bankers Association Government Relations team: CBA Don Childears Jenifer Waller Amanda Averch Colorado Legislative Services Melanie Layton Jim Cole Garin Vorthmann Zoey DeWolf Hogan Lovells Craig Umbaugh Other partners