Municipal Banking. The Nuts and Bolts of the Banking World for a Municipality

Transcription

1 Municipal Banking The Nuts and Bolts of the Banking World for a Municipality

2 PA 20 of 1943 Investment of Surplus Funds of Political Subdivisions Gives guidance on how political subdivisions can invest funds. Requirement to establish and follow an investment policy.

3 Permissible Investments Under PA 20 of 1943 Bonds, securities, and other obligations of the United States or an agency or instrumentality of the United States. US Treasuries FHLB, FNMA, FHLMC, GNMA

4 Permissible Investments Under PA 20 of 1943 Certificates of deposit, savings accounts, or depository receipts of a financial institution. A financial institution is defined as a state of nationally chartered bank or credit union that maintains a principal office or branch office located in the state, and: The deposits are insured by an agency of the United States government.

5 Permissible Investments Under PA 20 of 1943 Commercial paper rated at the time of purchase within the 2 highest classifications established by not less than 2 standard rating services and that matures not more than 270 days after the date of purchase.

6 Permissible Investments Under PA 20 of 1943 Repurchase agreements consisting of instruments secured by obligations of the Unites States, or GSEs. Bankers' acceptances of United States banks. Obligations of this state or any of its political subdivisions that at the time of purchase are rated as investment grade by not less than 1 standard rating service.

7 Permissible Investments Under PA 20 of 1943 Mutual funds registered under the investment company act of Investment pools organized under the surplus funds investment pool act, 1982 PA 367, MCL to The investment pools organized under the local government investment pool act, 1985 PA 121, MCL to

8 Investment Policy PA 20 of 1943 also dictates that public entities must adopt and follow an investment policy that adheres to the aforementioned permissible investments. [Example]

9 Approved Bank Products Checking Savings Money Market Certificates of Deposit Overnight Repurchase Sweeps or Investment Sweep Accounts CDARs or Term Repurchase Agreements * PA 20 does not require that all funds must be FDIC insured.

10 Financial Institution Due Diligence Evaluating Financial Institutions for Safety and Soundness. Rating Services Bauer Financial Bank Rate Bank Regulator Resources FDIC Bank Find FFIEC Call Reports

11 Financial Institution Due Diligence Key Metrics for Evaluating Financial Strength of a Bank (using FDIC BankFind)

12 Financial Institution Due Diligence

13 Financial Institution Due Diligence

14 Financial Institution Due Diligence

15 Financial Institution Due Diligence Total Risk Based Capital Ratio Well Capitalized 8%. Tier 1 Capital Ratio Well Capitalized 6%. Does not include subordinated debt et. al. Net Loans and Leases to Assets Typically less than 75-80%. Core Deposits to Total Deposits Typically not less than 50%.

16 Financial Institution Due Diligence Net Charge Offs to Loans and Leases Compare to Peers Typically < 1%.

17 Interest Rate Environment

18 Interest Rate Environment

19 Interest Rate Environment

20 Interest Rate Environment

21 Setting Expectations with Banker Bank must adhere to the investment policy of the municipality. Annual written approval Discuss acceptable risk tolerance Free flow of information between the finance team and banker. Transparency regarding fees and holdings Quick action and proactive service Regular relationship review meetings- annual meeting at minimum.

22 Thank You! Tammy J. Kerr Vice President, Treasury Management 250 Pearl Street, NW, Suite 100 Grand Rapids, MI P: L. Kyle Fahrner Vice President, Municipal Finance 5710 Eastman Avenue Midland, MI P: