BILL REQ. #:  Z-0697.1 

Read first time 02/09/09.   Referred to Committee on Ways & Means.

     AN ACT Relating to the modernization and clarification of the powers of the public deposit protection commission in regard to banks, savings banks, and savings associations as public depositaries; amending RCW 39.58.010, 39.58.040, 39.58.050, 39.58.060, 39.58.100, 39.58.103, 39.58.105, 39.58.108, 39.58.130, 39.58.135, 39.58.140, and 39.58.750; adding new sections to chapter 39.58 RCW; creating a new section; repealing RCW 39.58.065; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 39.58.010 and 1996 c 256 s 1 are each amended to read as follows:
     In this chapter, unless the context otherwise requires:
     (1) "Public funds" means moneys under the control of a treasurer, the state treasurer, or custodian belonging to, or held for the benefit of, the state or any of its political subdivisions, public corporations, municipal corporations, agencies, courts, boards, commissions, or committees, including moneys held as trustee, agent, or bailee belonging to, or held for the benefit of, the state or any of its political subdivisions, public corporations, municipal corporations, agencies, courts, boards, commissions, or committees;
     (2) "Public depositary" means a financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has been approved by the commission to hold public deposits, and which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability((. Addition of the word "bank" denotes a bank, trust company, or national banking association and the word "thrift" denotes a savings association or savings bank));
     (3) "Loss" means the issuance of an order by a regulatory or supervisory authority or a court of competent jurisdiction (a) restraining a public depositary from making payments of deposit liabilities or (b) appointing a receiver for a public depositary;
     (4) "Commission" means the Washington public deposit protection commission created under RCW 39.58.030;
     (5) "Eligible collateral" means securities which are enumerated in RCW 39.58.050 (5) and (6) as eligible collateral for public deposits;
     (6) ((The)) "Maximum liability," ((of)) with reference to a public depositary, on any given date means:
     (a) A sum equal to ten percent of (((a))) all public deposits held by ((the qualified)) a public depositary on the then most recent commission report date((, or));
     (b) Ten percent of the average of the balances of said public deposits on the last four immediately preceding reports required pursuant to RCW 39.58.100, whichever amount is greater((, less any assessments paid to the commission pursuant to this chapter since the then most recent commission report date));
     (c) A sum or measure as the commission may from time to time set by resolution according to criteria established by rule, consistent with the commission's broad administrative discretion under RCW 39.58.040; or
     (d) A sum or other measure fixed by the state treasurer according to authority delegated to him or her under section 16 of this act and based upon exigent circumstances, which sum or measure shall be subject to review and ratification by resolution of the commission within ninety days of its implementation;
     (7) "Public funds available for investment" means such public funds as are in excess of the anticipated cash needs throughout the duration of the contemplated investment period;
     (8) "Investment deposits" means time deposits, money market deposit accounts, and savings deposits of public funds available for investment;
     (9) "Treasurer" ((shall)) means ((the state treasurer,)) a county treasurer, a city treasurer, a treasurer of any other municipal corporation, and any other custodian of public funds, except the state treasurer;
     (10) "Financial institution" means any national or state chartered commercial bank or trust company, savings bank, or savings association, or branch or branches thereof, located in this state and lawfully engaged in business;
     (11) "Commission report" means a formal accounting rendered by all public depositaries to the commission in response to a demand for specific information made by the commission detailing pertinent affairs of each public depositary as of the close of business on a specified date, which is the "commission report date." "Commission report due date" is the last day for the timely filing of a commission report;
     (12) "Director of the department of financial institutions" means the Washington state director of the department of financial institutions;
     (13) "Net worth" of a public depositary means (a) the equity capital as reported to its primary regulatory authority on the quarterly report of condition or statement of condition, or other required report required by its primary regulatory authority or federal deposit insurer, and may include capital notes and debentures which are subordinate to the interests of depositors, or (b) equity capital adjusted by rule or resolution of the commission after consultation with the director of the department of financial institutions;
     (14) "Depositary pledge agreement" means a tripartite agreement executed by the commission with a financial institution and its designated trustee. Such agreement shall be approved by the directors or the loan committee of the financial institution and shall continuously be a record of the financial institution. New securities may be pledged under this agreement in substitution of or in addition to securities originally pledged without executing a new agreement;
     (15) "Trustee" means a third-party safekeeping agent which has completed a depositary pledge agreement with a public depositary and the commission. Such third-party safekeeping agent may be the federal reserve bank of San Francisco, the federal home loan bank of Seattle, ((the trust department of the public depositary,)) or such other third-party safekeeping agent approved by the commission;
     (16) "Capitalization" means the measure or measures of capitalization, other than net worth, of a depositary applying for designation as or operating as a public depositary pursuant to this chapter, based upon regulatory standards of financial institution capitalization adopted by rule or resolution of the commission after consultation with the director of the department of financial institutions;
     (17) "Collateral" means the particular assets pledged as security to insure payment or performance of the obligations under this chapter as enumerated in RCW 39.58.050;
     (18) "Liquidity" means the measure or measures of liquidity of a depositary applying for designation as or operating as a public depositary pursuant to this chapter, based upon regulatory standards of financial institution liquidity adopted by rule or resolution of the commission after consultation with the director of the department of financial institutions;
     (19) "Public deposit" means public funds on deposit with a public depositary;
     (20) "State public depositary" means a public depositary that is a bank, savings bank, or savings association chartered and regulated pursuant to Title 30, 32, or 33 RCW;
     (21) "State treasurer" means the treasurer of the state of Washington.

Sec. 2   RCW 39.58.040 and 1996 c 256 s 3 are each amended to read as follows:
     The commission shall have the power and broad administrative discretion:
     (1) To make and enforce regulations necessary and proper to the full and complete performance of its functions under this chapter;
     (2) To require any public depositary to furnish such information dealing with public deposits and the exact status of its capitalization, collateral, liquidity, and net worth as the commission shall request((. Any public depositary which refuses or neglects to give promptly and accurately or to allow verification of any information so requested shall no longer be a public depositary and shall be excluded from the right to receive or hold public deposits until such time as the commission shall acknowledge that such depositary has furnished the information requested));
     (3) To take such action as it deems best for the protection, collection, compromise or settlement of any claim arising in case of loss;
     (4) To ((prescribe regulations, subject to this chapter, fixing)) fix by rule or resolution, consistent with this chapter, the requirements for qualification of financial institutions as public depositaries, and fixing other terms and conditions consistent with this chapter, under which public deposits may be received and held;
     (5) To make and enforce regulations setting forth criteria ((establishing minimum)) for the establishment by policy of standards for the financial condition of ((bank and thrift)) public depositaries ((and, if the minimum standards are not met, providing for additional collateral requirements or restrictions regarding)), including capitalization, collateral, liquidity, and net worth;
     (6) To require additional or different types and amounts of collateral, or to restrict a public depositary's right to receive or hold public deposits if the standards for the financial condition of public depositaries are not met;
     (((6))) (7) To fix the official date on which any loss shall be deemed to have occurred taking into consideration the orders, rules, and regulations of the supervisory authority of a public depositary's primary regulatory authority and federal deposit insurer as they affect the failure or inability of a public depositary to repay public deposits in full; ((and (7)))
     (8) In case loss occurs in more than one public depositary, to determine the allocation and time of payment of any sums due to public depositors under this chapter; and
     (9) To make and enforce sanctions against a public depositary for noncompliance with the provisions of this chapter and rules or policies of the commission.

NEW SECTION.  Sec. 3   A new section is added to chapter 39.58 RCW to read as follows:
     The commission shall maintain a single public depositary pool. All public depositaries, as defined in RCW 39.58.010, shall be treated uniformly by the commission without regard to distinctions in the nature of its financial institution charter.

Sec. 4   RCW 39.58.050 and 1996 c 256 s 4 are each amended to read as follows:
     (1) Every public depositary shall complete a depositary pledge agreement with the commission and a trustee, and shall at all times maintain, segregated from its other assets, eligible collateral in the form of securities enumerated in this section having a value at least equal to its maximum liability and as otherwise prescribed in this chapter. Such collateral shall be segregated by deposit with the depositary's trustee and shall be clearly designated as security for the benefit of public depositors under this chapter.
     (2) Securities eligible as collateral shall be valued at market value, and the total market value of securities pledged in accordance with this chapter shall not be reduced by withdrawal or substitution of securities except by prior authorization, in writing, by the commission.
     (3) The public depositary shall have the right to make substitutions of an equal or greater amount of such collateral at any time.
     (4) The income from the securities which have been segregated as collateral shall belong to the public depositary without restriction.
     (5) Each of the following enumerated classes of securities, providing there has been no default in the payment of principal or interest thereon, shall be eligible to qualify as collateral:
     (a) Certificates, notes or bonds of the United States, or other obligations of the United States or its agencies, or of any corporation wholly owned by the government of the United States;
     (b) State, county, municipal, or school district bonds or warrants of taxing districts of the state of Washington or any other state of the United States, provided that such bonds and warrants shall be only those found to be within the limit of indebtedness prescribed by law for the taxing district issuing them and to be general obligations;
     (c) The obligations of any United States government-sponsored corporation whose obligations are or may become eligible as collateral for advances to member banks as determined by the board of governors of the federal reserve system;
     (d) Bonds, notes, letters of credit, or other securities or evidence of indebtedness constituting the direct and general obligation of a federal home loan bank or federal reserve bank;
     (e) Revenue bonds of this state or any authority, board, commission, committee, or similar agency thereof, and any municipality or taxing district of this state;
     (f) Direct and general obligation bonds and warrants of any city, town, county, school district, port district, or other political subdivision of any state, having the power to levy general taxes, which are payable from general ad valorem taxes;
     (g) Bonds issued by public utility districts as authorized under the provisions of Title 54 RCW, as now or hereafter amended;
     (h) Bonds of any city of the state of Washington for the payment of which the entire revenues of the city's water system, power and light system, or both, less maintenance and operating costs, are irrevocably pledged, even though such bonds are not general obligations of such city;
     (6) In addition to the securities enumerated in this section, every public depositary may also segregate such bonds, securities, and other obligations as are designated to be authorized security for public deposits under the laws of this state.
     (7) The commission may ((at any time or times declare any particular security as ineligible to qualify)) determine by rule or resolution whether any security, whether or not enumerated in this section, is or shall remain eligible as collateral when in the commission's judgment it is ((deemed)) desirable or necessary to do so.

Sec. 5   RCW 39.58.060 and 1996 c 256 s 5 are each amended to read as follows:
     When the commission determines that a loss has occurred in a ((bank)) public depositary, it shall as soon as possible make payment to the proper public officers of all funds subject to such loss, pursuant to the following procedures:
     (1) For the purposes of determining the sums to be paid, the director of the department of financial institutions or the receiver shall, within twenty days after issuance of a restraining order or taking possession of any ((bank)) public depositary, ascertain the amount of public funds on deposit therein as disclosed by its records and the amount thereof covered by deposit insurance and ((certify)) provide written verification of the amounts thereof to the commission and each such public depositor;
     (2) Within ten days after receipt of such ((certification)) written verification, each such public depositor shall furnish to the commission verified statements of its deposits in such ((bank)) public depositary, including any uninsured and uncollateralized status of such public deposits, as disclosed by its records;
     (3) Upon receipt of such ((certificate)) written verification and statements, the commission shall ascertain and fix the amount of such public deposits, net after deduction of any amount received from deposit insurance and held collateral, and, after determining and declaring the apparent net loss, assess the same against all then ((bank)) public depositaries, as follows: First, against the public depositary in which the loss occurred, to the extent of the full value of collateral segregated pursuant to this chapter; second, against all other ((bank)) public depositaries pro rata in proportion to the maximum liability of each such depositary as it existed on the date of loss or most recent report date;
     (4) Assessments made by the commission shall be payable on the second business day following demand, and in case of the failure of any public depositary so to pay, the commission shall forthwith take possession of the securities segregated as collateral by such depositary pursuant to this chapter and liquidate the same for the purpose of paying such assessment;
     (5) Upon receipt of such assessment payments, the commission shall reimburse the public depositors of the public depositary in which the loss occurred to the extent of the depositary's net deposit liability to them;
     (6) Any financial institution receiving assessment proceeds shall provide a receivership certificate to the commission.

NEW SECTION.  Sec. 6   RCW 39.58.065 (Loss in a thrift public depositary -- Procedure for payment) and 1996 c 256 s 6 & 1983 c 66 s 10 are each repealed.

Sec. 7   RCW 39.58.100 and 1996 c 256 s 11 are each amended to read as follows:
     (1) On or before each commission report due date, each public depositary shall render to the commission a written report, certified under oath, indicating the total amount of public funds on deposit held by it, the net worth of the depositary, and the amount and nature of eligible collateral then segregated for the benefit of the commission.
     (2) The commission may instruct the director of the department of financial institutions to examine and thereafter certify as to the accuracy of any statement to the commission by any state public depositary, or to provide such other examination report information or data as may be required by the commission. The type, content, and frequency of the reports may be determined by the director of the department of financial institutions, consistent with the requirements of the commission as defined by rule.

Sec. 8   RCW 39.58.103 and 1983 c 66 s 13 are each amended to read as follows:
     Each public depositary shall notify the commission in writing within ((five working days)) forty-eight hours, or by close of business of the next business day thereafter, of the happening of an event which causes its net worth to be reduced by an amount greater than ten percent of the amount shown as its net worth on the most recent report submitted pursuant to RCW 39.58.100.

Sec. 9   RCW 39.58.105 and 1996 c 256 s 12 are each amended to read as follows:
     (1) The commission may require the state auditor or the director of the department of financial institutions, to the extent of their respective authority under applicable federal and Washington state law, to thoroughly investigate and report to it concerning the condition of any financial institution which makes application to become a public depositary, and may also as often as it deems necessary require the state auditor or the director of the department of financial institutions, to the extent of their respective authority under applicable federal and Washington state law, to make such investigation and report concerning the condition of any financial institution which has been designated as a public depositary. The expense of all such investigations or reports shall be borne by the financial institution examined.
     (2) In lieu of any such investigation or report, the commission may rely upon information made available to it or the director of the department of financial institutions by the office of the comptroller of the currency, the office of thrift supervision, the federal deposit insurance corporation, the federal reserve board, ((or)) any state bank or thrift regulatory agency, or any successor state or federal bank or thrift regulatory agency, and any such information or data received by the commission shall be kept and maintained in the same manner and have the same protections as examination reports received by the commission from the director of the department of financial institutions pursuant to RCW 30.04.075(2)(h) and 32.04.220(2)(h).
     (3) The director of the department of financial institutions shall in addition advise the commission of any action he or she has directed any state public depositary to take which will result in a reduction of greater than ten percent of the net worth of such depositary as shown on the most recent report it submitted pursuant to RCW 39.58.100.

Sec. 10   RCW 39.58.108 and 1996 c 256 s 13 are each amended to read as follows:
     Any financial institution may become ((a)), and thereafter operate as, a public depositary upon approval by the commission and segregation of collateral in the manner as set forth in this chapter, and ((upon)) subject to compliance with all rules ((as promulgated)) and policies adopted by the commission. ((For the first twelve-month period following qualification as a public depositary, the)) A public depositary shall at all times pledge and segregate eligible securities in an amount ((equal to not less than ten percent of all public funds on deposit in the depositary)) established by the commission by rule or noticed resolution.

Sec. 11   RCW 39.58.130 and 1996 c 256 s 14 are each amended to read as follows:
     A treasurer ((is)) and the state treasurer are authorized to deposit in a public depositary any public funds available for investment and secured by collateral in accordance with the provisions of this chapter, and receive interest thereon. The authority provided by this section is additional to any authority now or hereafter provided by law for the investment or deposit of public funds by any such treasurer: PROVIDED, That in no case shall the aggregate of demand and investment deposits of public funds by any such treasurer in any one public depositary exceed at any time the net worth of that depositary. If a public depositary's net worth is reduced, a treasurer and the state treasurer may allow public funds on deposit in excess of the reduced net worth to remain until maturity upon pledging by the depositary of eligible securities valued at market value in an amount at least equal to the amount of the excess deposits. The collateral shall be segregated as provided in RCW 39.58.050. If the additional securities required by this section are not pledged by the depositary, the depositary shall permit withdrawal prior to maturity by the treasurer of deposits, including accrued interest, in accordance with applicable statutes and governmental regulations.

Sec. 12   RCW 39.58.135 and 1996 c 256 s 15 are each amended to read as follows:
     Notwithstanding RCW 39.58.130, (1) aggregate deposits received by a public depositary from all ((public)) treasurers and the state treasurer shall not exceed at any time one hundred fifty percent of the value of the depositary's net worth, nor (2) shall the aggregate deposits received by any public depositary exceed thirty percent of the total aggregate deposits of all public treasurers in all depositaries as determined by the public deposit protection commission. However, a public depositary may receive deposits in excess of the limits provided in this section if eligible securities, as prescribed in RCW 39.58.050, are pledged as collateral in an amount equal to one hundred percent of the value of deposits received in excess of the limitations prescribed in this section.

Sec. 13   RCW 39.58.140 and 1996 c 256 s 16 are each amended to read as follows:
     When deposits are made in accordance with this chapter, a treasurer and the state treasurer shall not be liable for any loss thereof resulting from the failure or default of any public depositary without fault or neglect on his or her part or on the part of his or her assistants or clerks.

Sec. 14   RCW 39.58.750 and 1996 c 256 s 17 are each amended to read as follows:
     Notwithstanding any provision of law to the contrary, the state treasurer or any ((county, city, or other municipal)) treasurer or other custodian of public funds may receive, disburse, or transfer public funds under his or her jurisdiction by means of wire or other electronic communication in accordance with accounting standards established by the state auditor under RCW 43.09.200 with regard to ((municipal)) treasurers of municipalities or other custodians or by the office of financial management under RCW 43.88.160 in the case of the state treasurer and other state custodians to safeguard and insure accountability for the funds involved.

NEW SECTION.  Sec. 15   A new section is added to chapter 39.58 RCW to read as follows:
     If a depositary neglects or refuses to promptly and accurately furnish, or to allow verification of, any required information requested by the commission or by the director of the department of financial institutions when acting on behalf of the commission pursuant to this chapter, or if a public depositary otherwise fails to comply with this chapter or any rules or policies of the commission, the commission may at its option deny or revoke the authority of such depositary to act as a public depositary pursuant to this chapter, or otherwise suspend such depositary from receiving or holding public deposits until such time as the depositary receives the information or complies with the commission's rules and policies. The commission shall have the authority to assess by rule costs for a depositary's noncompliance with this chapter and rules and resolutions adopted pursuant to this chapter.

NEW SECTION.  Sec. 16   A new section is added to chapter 39.58 RCW to read as follows:
     The commission may by resolution delegate all of its authority to the state treasurer except rule making.

NEW SECTION.  Sec. 17   A new section is added to chapter 39.58 RCW to read as follows:
     The liability of a public depositary under this chapter shall not be altered by any merger, takeover, or acquisition, except to the extent that such liability is assumed by agreement or operation of law by the successor entity or resulting financial institution.

NEW SECTION.  Sec. 18   The code reviser shall alphabetize and renumber the definitions in RCW 39.58.010.

NEW SECTION.  Sec. 19   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.