SENATE BILL REPORT

                   SB 6575

              As Reported By Senate Committee On:

      Financial Institutions & Housing, February 1, 1996

Title:  An act relating to public funds.

Brief Description:  Regulating public funds.

Sponsors:  Senators Prentice and Hale.

Brief History:

Committee Activity:  Financial Institutions & Housing:  1/23/96, 2/1/96 [DP].

SENATE COMMITTEE ON FINANCIAL INSTITUTIONS & HOUSING

Majority Report:  Do pass.

  Signed by Senators Prentice, Chair; Hale, Roach, Sellar, Smith and Sutherland.

Staff:  Katie Healy (786-7403)

Background:  The Public Deposit Protection Act (PDPA) was adopted as a new concept for collateralizing bank balances of public treasurers' accounts.  This means that in the event of the default of one bank, all participating banks in the state collectively assure that no loss of funds shall be suffered by any public treasurer or custodian of public funds.

The Public Deposit Protection Commission (PDPC) was created, and is comprised of the Governor, the Lieutenant Governor, and the State Treasurer.  The State Treasurer chairs the commission and provides administrative support.  The PDPC is responsible for protecting all public funds deposited in state banks and thrifts.  Public funds are those moneys belonging to or held for the state, its political subdivisions (local government), municipal corporations, agencies, courts, boards, commissions, or committees, and includes moneys held in trust.  Public funds can only be deposited in commercial banks and thrift institutions that have been designated as public depositaries.

In the event of default of a public depository, the PDPC establishes the amount of public fund loss.  Federal insurance coverage and the failed depositary's pledged collateral against public deposits are applied.  Then, each participating depositary is assessed for its proportionate share of the shortfall.

Public funds deposited in out-of-state or alien banks accounts are not protected from loss by the PDPC.

Summary of Bill:  Within the PDPA, several definitions are modified or added.  Public corporations are added to the list of entities for whom a treasurer or custodian holds public funds.  References to public depositary or savings association are modified to coordinate with federal definitions.  The definition of investment deposits is expanded to include money market deposit accounts.  The definition of public depositary and financial institution is amended to accommodate branches of out-of-state banks or thrifts doing business in the state.  Net worth is redefined to include the components of equity capital as reported to the appropriate regulatory authority, and includes provisions for rule-making to adjust equity capital.  Definitions are added for depositary pledge agreement and for trustee.

Washington branches of out-of-state banks and saving associations may be approved as public depositaries.  The PDPC may adjust net worth requirements to account for interstate branching of Washington banks into other states and out-of-state banks into Washington.  The PDPC chair, when delegated the authority by the commission, may allow state and local government entities to establish demand accounts in out-of-state and alien banks.

All public depositaries must enter into depositary pledge agreements.  This agreement is between the financial institution, the PDPC, and the institution's trustee.  The types of securities that may be used as collateral are updated.

Technical changes and clarifications are made.

Appropriation:  None.

Fiscal Note:  Not requested.

Effective Date:  The bill contains an emergency clause and takes effect immediately.

Testimony For:  This is a housekeeping bill which modernizes the statute.  The bill complies with current FDIC requirements.  It levels the playing field for Washington banks, Washington banks that branch into other states, and out-of-state banks that branch into the state.  The commission chair can authorize out-of-state bank accounts requested by public treasurers, making it easier for the treasurers and more economical for the public.

Testimony Against:  None.

Testified:  PRO:  John Woodall, Mary Clogston, OIC, Peter Rex, Patty Richards, State Treasurer's Office; Mark Thomson, DFI.