HOUSE BILL REPORT

SB 5731

BYSenators von Reichbauer and Moore

Allowing investment in government obligations.

House Committe on Financial Institutions & Insurance

Majority Report:  Do pass.  (12)

      Signed by Representatives Dellwo, Chair; Zellinsky, Vice Chair; Chandler, Ranking Republican Member; Anderson, Baugher, Beck, Crane, Day, Dorn, Inslee, Nutley and K. Wilson.

House Staff:John Conniff (786-7119)

AS PASSED HOUSE APRIL 6, 1989

BACKGROUND:

State statutes govern the investment authority of financial institutions and fiduciaries of trust agreements. Generally, state law permits investment in obligations of the United States government such as in treasury bills. However, these laws do not authorize investment in an investment management company that manages and invests in United States government obligations. For example, financial institutions holding public funds must set aside collateral to protect against a loss of public funds. General obligations of the United States qualify as acceptable collateral but investments in a company that invests solely in U.S. obligations do not qualify.

SUMMARY:

Financial institutions, public depositaries, and trustees may invest in management type investment companies that invest solely in U.S. government obligations. However, the investment company must take actual possession of the government obligations directly or through an authorized custodian of the obligations. The State Supervisor of Banking and the State Supervisor of Savings and Loans may adopt rules limiting the authority of savings banks and savings and loan associations to invest in investment companies.

Fiscal Note:      Not Requested.

House Committee ‑ Testified For:    Don Brazier, Owens & Brazier, P.S., for Federated Investors.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    Allowing institutions to invest in government obligations through an investment company that invests solely in government obligations will result in greater flexibility as to the amount an institution wishes to invest and will result in a better return,  given the mix of government obligations held by the investment company.

House Committee - Testimony Against:      None Presented.