WSR 16-14-069 PROPOSED RULES OFFICE OF THE STATE TREASURER [Filed July 1, 2016, 8:42 a.m.]
Original Notice.
Preproposal statement of inquiry was filed as WSR 16-11-070.
Title of Rule and Other Identifying Information: Chapter 389-12 WAC, Practice and procedure—Public depositaries, these rules govern the operation of the public deposit protection commission (PDPC). The rules set forth reporting requirements and operational procedures followed by financial institutions to become a public depository and maintain qualification to hold public funds while allowing the PDPC to preserve the viability and success of the program.
Hearing Location(s): Office of the State Treasurer (OST), 1110 Capitol Way South, Suite 260, Olympia, WA 98501, on August 9, 2016, at 1:30 p.m.
Date of Intended Adoption: August 9, 2016.
Submit Written Comments to: Johnna Craig, 1110 Capitol Way South, P.O. Box 40200, Olympia, WA 98504-0200, e-mail Johnna.Craig@tre.wa.gov, fax (360) 704-5181, by August 5, 2016.
Assistance for Persons with Disabilities: Contact Johnna Craig by August 5, 2016, TTY dial 7-1-1 for telecommunications relay services.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: To amend and update the requirements, terms, and conditions for financial institutions to receive and hold public funds in accordance with the Public Deposit Protection Act, as last amended by chapter 2, Laws of 2016 1st sp. sess.
Reasons Supporting Proposal: To make rules consistent with recent legislative changes to the Public Deposit Protection Act.
Statutory Authority for Adoption: RCW 39.58.040.
Statute Being Implemented: Chapter 39.58 RCW.
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: Washington state treasurer, governmental.
Name of Agency Personnel Responsible for Drafting: Shad Pruitt, 1110 Capitol Way South, Suite 260, Olympia, WA 98501, (360) 902-8904; Implementation and Enforcement: Nancy Adams, 1110 Capitol Way South, Suite 260, Olympia, WA 98501, (360) 902-9077.
No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposed rules do not regulate or have an economic impact on any small business. The rule only impacts financial institutions participating as public depositaries in Washington state.
A cost-benefit analysis is not required under RCW 34.05.328. OST is not an agency listed in RCW 34.05.328 (5)(a)(i). Further, OST does not voluntarily make the section applicable to the adoption of this rule, and, to date, the joint administrative rules review committee has not made the section applicable to the adoption of these rules.
July 1, 2016
Shad Pruitt
Deputy Treasurer
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-010 Promulgation.
The public deposit protection commission, hereinafter referred to as the "commission," after due and proper notice, and pursuant to the provisions of chapter 193, Laws of 1969 1st ex. sess., as last amended by chapter ((9)) 2, Laws of ((2009)) 2016 1st sp. sess., hereinafter referred to as the "act," hereby adopts and promulgates the following rules and regulations.
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-020 Definitions.
Unless the context requires otherwise:
(((1) "Uninsured public deposits" means public deposits not backed by the full faith and credit of the United States government.
(2) "Depositor" means a state or local government with public funds on deposit with a public depositary as defined in chapter 39.58 RCW.
(3) "Investment deposits" means time deposits, savings deposits, and money market deposit accounts of public funds available for investment as defined in Regulation D, Title 12 Code of Federal Regulations (C.F.R.) Part 204. "Investment deposits" also means certificates of deposit issued in accordance with the following conditions:
(a) The funds are initially invested in an authorized Washington state public depositary;
(b) The public depositary arranges for the investment of the funds in certificates of deposit issued by one or more federally insured banks or savings and loan associations wherever located, for the depositor;
(c) The full amount of the deposit, principal and interest, of each such certificate of deposit is insured by an agency of the federal government;
(d) The public depositary acts as custodian for the depositor with respect to all such certificates of deposit issued for the depositor; and
(e) At the same time that funds are invested and the corresponding certificates of deposit are issued, the public depositary receives an amount on deposit from other federally regulated financial institutions wherever located equal to or greater than the amount of funds initially invested by the depositor.
All such investment deposits invested in accordance with conditions (a) through (e) of this subsection shall not be subject to any additional security or collateral requirement.
(4) "Commission report" means a formal accounting rendered by all public depositaries to the commission, which details pertinent information of each depositary in a format supplied by the commission.
(5) "Commission report date" means the last day of each calendar quarter.
(6) "Commission report due date" means the commission report is due in the office of the commission no later than the date a depositary's financial report is due to its federal regulatory authority.
(7) "Monthly report" means a report prepared by all public depositaries to the commission, which details insured and uninsured public funds and other pertinent information of each depositary in a format supplied by the commission.
(8) "Monthly report date" means the last day of each calendar month.
(9) "Monthly report due date" means the monthly report is due in the office of the commission no later than eight working days after the monthly report date or other date as set by the commission.
(10) "Financial report" means the consolidated statement of condition and income required by the Federal Financial Institution Examination Council or the thrift financial report required by the Office of Thrift Supervision.
(11) "Date of loss" means the date on which a loss shall be deemed to have occurred within the meaning of the act, and shall be the first to happen of the following:
(a) The date of the taking of possession of the financial institution by a supervisory agency; or
(b) The date of the appointment of the receiver or conservator for a financial institution; or
(c) The date of the commencement of a voluntary liquidation proceeding for a financial institution; or
(d) The date of an order issued by a regulatory authority or a court of competent jurisdiction restraining a financial institution from making payments on deposit liabilities; or
(e) The date on which the commission declares that a financial institution no longer has the ability to repay public deposits in full.
(12) "Depositary pledge agreement" means a written tripartite agreement, on a form supplied by the commission, wherein a financial institution, in compliance with the act and as a condition precedent to becoming or continuing to be a public depositary, transfers and delivers securities which are eligible collateral to a corporate fiduciary under the exercise of its trust powers, to the federal reserve bank of San Francisco, the federal home loan bank of Seattle, or such other third-party safekeeping agent approved by the commission, which agrees to safekeep such securities for the primary benefit of the commission under the terms and conditions of the agreement and for the purposes set forth by the act and the regulations of the commission. Such agreement shall be executed on behalf of the commission by the chairman, who shall be the state treasurer. Upon completion, the agreement shall be approved by the board of directors or loan committee of the financial institution. The agreement must be continuously, from the time of its execution, an official record of the financial institution. Copies of the meeting minutes which reflect this are to be provided to the commission.
(13) "Segregation of collateral" means the transfer and delivery of eligible securities by a public depositary pursuant to a depositary pledge agreement. A public depositary must submit a written request to the commission to reduce the amount of securities pledged as collateral. The trustee holding the collateral shall not allow a reduction of securities without the prior written approval of the commission. When a public depositary pledges eligible securities whose payments include a periodic principal reduction, the trustee shall advise the commission, on no less than a monthly basis, of the amounts of such principal payments as well as the new total value which result from the principal payments.
(14) "Net worth" of a public depositary means the same as defined in RCW 39.58.010.
Net worth for public depositaries headquartered outside Washington state may be adjusted by the commission to reflect the depositaries' proportional net worth position in Washington state.
(15) "Corporate fiduciary" for the purposes of these rules means a financial institution as defined herein which is possessed of statutorily granted trust authority: Provided, That for the purposes of this definition such financial institution need not be located or doing business in the state of Washington.
(16) "Out-of-state bank" for the purposes of these rules means a financial institution which has its principal place of business outside the state of Washington.
(17) "Alien bank" for the purposes of these rules means a financial institution organized under the laws of a foreign country and having its principal place of business in that country, the majority of the beneficial ownership and control of which is vested in citizens of countries other than the United States of America.)) "Alien bank" for the purposes of these rules means a financial institution organized under the laws of a foreign country and having its principal place of business in that country, the majority of the beneficial ownership and control of which is vested in citizens of countries other than the United States of America.
"Commission report" means a formal accounting rendered by all public depositaries to the commission, which details pertinent information of each public depositary in a format supplied by the commission.
"Commission report date" means the last day of each calendar quarter.
"Commission report due date" means the commission report is due in the office of the commission no later than one business day after the date a public depositary's financial report is due to its federal regulatory authority.
"Date of loss" means the date on which a loss shall be deemed to have occurred within the meaning of the act, and shall be the first to happen of the following:
• The date of the taking of possession of the financial institution by a supervisory agency;
• The date of the appointment of the receiver or conservator for a financial institution;
• The date of the commencement of a voluntary liquidation proceeding for a financial institution;
• The date of an order issued by a regulatory authority or a court of competent jurisdiction restraining a financial institution from making payments on deposit liabilities; or
• The date on which the commission declares that a financial institution no longer has the ability to repay public deposits in full.
"Depositary pledge agreement" means the same as defined in RCW 39.58.010, on a form supplied by the commission, wherein a financial institution, in compliance with the act and as a condition precedent to becoming or continuing to be a public depositary, transfers and delivers securities which are eligible collateral to a trustee approved by the commission, which agrees to safekeep such securities for the primary benefit of the commission under the terms and conditions of the agreement and for the purposes set forth by the act and the regulations of the commission. Such agreement shall be executed on behalf of the commission by the chairman. The agreement shall be approved by the board of directors or loan committee of the financial institution. Copies of the meeting minutes which reflect the approval are to be provided to the commission.
"Financial report" means the consolidated reports of condition and income required by the Federal Financial Institutions Examination Council.
"Monthly report" means a report prepared by all public depositaries to the commission, which details insured and uninsured public deposits and other pertinent information of each public depositary in a format supplied by the commission.
"Monthly report date" means the last day of each calendar month.
"Monthly report due date" means the monthly report is due in the office of the commission no later than eight business days after the monthly report date or other date as set by the commission.
"Net worth" of a public depositary means the same as defined in RCW 39.58.010, except that net worth for public depositaries with facilities outside Washington state may be adjusted by the commission to reflect the public depositaries' proportional net worth position in Washington state.
"Out-of-state bank" for the purposes of these rules means a financial institution located outside the state of Washington.
"Segregation of collateral" means the transfer and delivery of eligible securities by a public depositary to a trustee pursuant to a depositary pledge agreement or delivery of a letter of credit to the commission.
"Uninsured public deposits" means public deposits not backed by the full faith and credit of the United States government.
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-030 New public depositaries.
Any financial institution in the state of Washington eligible under the act, in order to become a public depositary, must be approved by the commission and segregate collateral in the manner as set forth in chapter 39.58 RCW and these rules prior to the receipt of public deposits. Until such time as public depositaries have submitted four consecutive commission reports to the commission as required by RCW 39.58.100, they shall at all times be required to pledge and segregate eligible ((securities)) collateral, valued ((at market value,)) in an amount equal to not less than ((10% of uninsured public funds on deposit in said depositary,)) its maximum liability or such other sum or measure established by the commission by rule or ((noticed)) resolution.
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-040 Computation and report of maximum liability.
On each commission report date each public depositary shall calculate its maximum liability in a format supplied by the commission. The commission report shall, in addition to other information required by the commission in its discretion, include the amount of insured and uninsured public deposits of Washington state and its political subdivisions for the most recent commission report date, the uninsured public deposits as shown on the four most recent commission reports (i.e., current report and three immediately preceding reports), the average of uninsured public deposits for the four most recent commission report dates, and the public depositary's maximum liability as defined in chapter 39.58 RCW.
The commission report shall be received in the office of the commission by the commission report due date, and shall also include schedules, as determined by the commission, from the public depositary's most recent financial report to its federal regulatory authority. Any public depositary failing to submit its commission report by the commission report due date shall be subject to appropriate sanction as provided in chapter 39.58 RCW and WAC 389-12-100.
At the end of each calendar quarter, the commission shall provide each public depositary the amount constituting thirty percent of total public funds on deposit in Washington state for the preceding quarter. Public depositaries shall use this amount to monitor their total public funds on deposit for the ensuing quarter, unless notified of a revised amount by the commission.
Upon ((written)) request from a public depositary the commission may, for good cause shown, extend the commission report due date for commission reports for a period not to exceed five days.
If the maximum liability has increased from the previous commission report or if aggregate public deposits exceed the limitations prescribed in RCW 39.58.135, the public depositary shall immediately increase its collateral and the commission shall be so notified.
Each public depositary shall provide to the commission a copy of any changes, amendments, or alterations to the public depositary's financial report as submitted to its federal regulatory authority which relate to (((a) deposits of states and political subdivision, and/or (b))) public funds on deposit and net worth.
A monthly report of insured and uninsured public ((funds)) deposits, and other pertinent information shall, in a format supplied by the commission, be submitted by each public depositary to the commission no later than the monthly report date. If applicable, adjustments to the public depositaries' last reported net worth and/or additional collateral being pledged shall be listed on the monthly report. The monthly report shall be submitted to the commission every month. Any public depositary failing to submit its monthly report by the monthly report due date shall be subject to appropriate sanction as provided in chapter 39.58 RCW and WAC 389-12-100.
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-050 Valuation.
Securities pledged as collateral by a public depositary ((shall be reported at par and)) will be valued at market value. Letters of credit pledged as collateral by a public depositary will be valued at the maximum amount available to be drawn.
((Market)) Value shall be computed as of the date of segregation or the last preceding commission report date, whichever is later. When the commission report is submitted, each public depositary shall ((provide)) certify, in a format supplied by the commission, a current listing of ((those securities)) collateral pledged and their current ((par and market)) value as of the commission report date.
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-060 Deposit or withdrawal of collateral.
A public depositary must submit a request to the commission to reduce the amount of collateral pledged. Except for the exchange or substitution of securities having ((a like)) an equal or greater market value, the trustee shall not permit the withdrawal of any security without advance ((written)) approval of the commission.
The trustee, under a depositary pledge agreement, shall inform the commission whenever ((assets)) securities are delivered to or released by the trustee by ((mailing)) providing to the commission, within twenty-four hours following such deposit or withdrawal, a copy of the transaction receipt ((signed by the party that accepted delivery of such assets)).
When a public depositary pledges eligible securities whose payments include periodic principal reduction, the trustee shall advise the commission, on no less than a monthly basis, of the amounts of such principal payments as well as the new total value which result from the principal payments.
No costs, fees and expenses incidental to the functioning of the depositary pledge agreement shall be a charge against the commission or its interest in the securities pledged.
Each public depositary shall at all times maintain eligible collateral segregated and pledged ((with its trustee)) having a value at least equal to its maximum liability as defined in the act or such other sum or measure set by the commission and under these rules and regulations. Compliance with the foregoing requirement shall be the public depositary's responsibility regardless of the frequency and form of reports required by the commission.
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-065 Aggregate deposit limitations.
(1) Whenever the public funds on deposit in a public depositary exceed the limits set forth in RCW 39.58.135, such public depositary shall immediately:
(((1))) (a) Notify the commission; and
(((2) Provide)) (b) Pledge additional collateral, if necessary, to provide one hundred percent collateralization of such excess deposits.
(2) When a public depositary's net worth position is reduced, such public depositary shall determine if any treasurer's or state treasurer's funds on deposit exceed the revised net worth. If any such excess deposits exist, the public depositary shall immediately notify the commission and provide the commission with a detailed accounting of deposits. The public depositary shall also advise the commission of its intent to:
(((1))) (a) Provide one hundred percent collateralization of the excess deposits; or
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-071 Minimum standards for the financial condition of public depositaries.
Notwithstanding any other provisions of chapter 39.58 RCW and chapter 389-12 WAC, a public depositary shall be classified into capital categories as provided under regulations implementing section 38 of the Federal Deposit Insurance Act (FDIA) issued by the federal regulatory authority for that public depositary. If a public depositary is categorized as undercapitalized for purposes of section 38 of the FDIA, the public depositary shall pledge ((securities as)) collateral, valued ((at current market value,)) in a total amount at least equal to one hundred percent of its uninsured public deposits, or take other actions as determined by the commission; however, the commission may, at any time, in its discretion, require a public depositary to pledge additional collateral after consultation with the appropriate regulatory authorities.
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-075 Collateral level to be maintained.
Whenever a public depositary must pledge ((securities as)) collateral in accordance with RCW 39.58.130, 39.58.135, WAC 389-12-065, and 389-12-071, the public depositary must monitor its uninsured public ((funds on)) deposits on a daily basis and maintain ((securities,)) collateral valued ((at current market value,)) accordingly.
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-080 Maximum deposit limitation.
In determining the maximum deposit limitation of any ((financial institution)) public depositary, a treasurer or state treasurer, unless advised to the contrary by the commission, may assume that each public depositary's net worth has remained unchanged from that stated in the most recently rendered commission report.
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-100 Violations—Sanction.
If a public depositary fails to comply with any of these rules, or of any of the provisions of the act, or any policies of the commission, the commission may at its option deny or revoke the authority of such public depositary to act as ((a public depositary)) such, or otherwise suspend such public depositary from receiving or holding public deposits until such time as the public depositary complies with the commission's rules and policies.
AMENDATORY SECTION (Amending Order 1, filed 2/9/70)
WAC 389-12-120 Administration.
The ((Washington public deposit protection)) commission shall be administered through the office of the Washington State Treasurer, ((Legislative Building,)) Olympia, Washington.
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-130 Financial institution mergers.
Within thirty calendar days of any merger, take over, or acquisition of a public depositary, the acquiring financial institution must: (1) Be a public depositary, or (2) become a public depositary as provided for in WAC 389-12-030, or (3) notify the commission of its intent not to become a public depositary. A financial institution electing not to become a public depositary must work with the commission, treasurers, and the state treasurer to orderly discharge public deposits.
The maximum liability of a public depositary under chapter 39.58 RCW shall not be altered or diminished by any merger, take over, or acquisition. Such liability shall be assumed by agreement or operation of law by the successor entity or resulting financial institution and no ((assets subject to a depositary pledge agreement)) pledged collateral shall be released by the commission or the trustee until such assumed liability is extinguished or evidenced ((by the deposit of assets pursuant to the depositary pledge agreement of)) through the segregation of collateral by the successor entity or resulting financial institution.
AMENDATORY SECTION (Amending WSR 09-16-010, filed 7/23/09, effective 8/23/09)
WAC 389-12-140 Demand deposit account with financial institution located outside the state of Washington.
A treasurer or state treasurer may, as provided in chapter 39.58 RCW, with the approval of the commission, establish a demand deposit account with an out-of-state bank or an alien bank. Prior to establishing such account, a treasurer or state treasurer shall submit, in writing, for review by the commission, the following information: (1) Detailed information setting forth the justification for such account, projected cash flows, and other benefits which will accrue to the public entity through the establishment of such account; (2) period of time such account will be in use; (3) reasons such account cannot be established with a public depositary; (4) name and location of financial institution or alien bank and name and telephone number of contact person at financial institution or alien bank; (5) extent of deposit insurance provided by financial institution or alien bank; (6) most recent fiscal year end and quarterly financial report, if any, provided to regulatory agency and/or shareholders by financial institution or alien bank; (7) proposed method of ensuring safety of deposits if not fully covered by deposit insurance, and (8) such other information as the commission reasonably may require.
The account shall not be established until it ((shall have)) has been authorized by a resolution of the commission or action authorized by the chair, setting forth the terms and conditions for such account. A copy of such resolution will be forwarded to the public entity and the state auditor.
Accounts authorized under this section are not considered to be protected against loss by the Public Deposit Protection Act.
REPEALER
The following sections of the Washington Administrative Code are repealed:
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