HOUSE BILL REPORT

HB 1304

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As Reported by House Committee On:

Business & Financial Services

Title: An act relating to allowing a public depository to arrange for reciprocal deposits of public funds.

Brief Description: Allowing a public depository to arrange for reciprocal deposits of public funds.

Sponsors: Representatives Kirby and Vick.

Brief History:

Committee Activity:

Business & Financial Services: 1/20/15, 1/21/15 [DP].

Brief Summary of Bill

  • Creates an exemption to the prohibition against the deposit of public funds in out-of-state institutions, if certain requirements are met.

HOUSE COMMITTEE ON BUSINESS & FINANCIAL SERVICES

Majority Report: Do pass. Signed by 11 members: Representatives Kirby, Chair; Ryu, Vice Chair; Vick, Ranking Minority Member; Parker, Assistant Ranking Minority Member; Blake, G. Hunt, Hurst, Kochmar, McCabe, Santos and Stanford.

Staff: Linda Merelle (786-7092).

Background:

The Public Deposit Protection Commission (Commission) ensures that public funds deposited in financial institutions are protected. The Commission is made up of the State Treasurer, Lieutenant Governor, and the Governor, and it is administered through the Office of the State Treasurer. It determines which institutions may hold state and local government deposits and monitors collateral pledged to secure uninsured deposits.

The Commission has the authority to: enforce regulations; require any public depositary to furnish information regarding the status of public deposits; take necessary actions regarding the protection, collection, compromise or settlement of claims arising from loss; set the requirements for initial and continued qualification of financial institutions as public depositaries; make and enforce rules regarding the standards governing matters within its power; require additional or different types and amounts of collateral or to restrict a public depositary's right to receive or hold public deposits if financial standards are not met; and make and enforce sanctions against a public depositary for noncompliance with statutes or rules or policies of the Commission.Generally, the deposit of public funds in a public depositary outside of the state is prohibited, but there are several statutory exceptions. These include:

In 2005 an additional exemption for out-of-state deposits was allowed. A demand deposit account may be maintained by a treasurer for the deposit of higher education endowment grants for specified study or research programs being performed outside Washington. The use of such out-of-state accounts must be authorized by the Commission or the chair, if delegated that authority by the Commission. There must be good cause for the account, and the account may be limited in time, terms, and conditions as the Commission or the chair deems appropriate.

Demand Accounts in Out-of-State Banks.

The Commission, or the chair upon delegation by the Commission, may authorize state and local governmental entities to establish demand accounts in out-of-state and alien banks in an aggregate amount up to $1 million. No single governmental entity is authorized to hold more than $50,000 in one demand account. The governmental entities establishing such accounts are solely responsible for their proper management and must bear total responsibility for any losses incurred by those accounts. As part of the exemption allowed for higher education endowment grants in 2005, this limitation does not apply to endowment grants for specified study or research programs being performed outside Washington.

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Summary of Bill:

An additional exception to the prohibition of depositing public funds in out-of-state institutions is permitted. Public funds may be deposited in out-of-state institutions if the following conditions are met:

Public funds deposited pursuant to the exemption created in this act are not subject to the limitations regarding deposits in demand accounts in out-of-state institutions.

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Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.

Staff Summary of Public Testimony:

(In support) This bill authorizes reciprocal deposits and community banks to compete with larger financial institutions and allows the funds deposited in community banks to stay in the community. It would maximize the opportunities for investment in local communities. Nearly 100 percent of the banks participating in reciprocal deposits are community banks. After the financial crisis, a lot of work was done to make sure that banks had one 100-percent collateral. Now that the crisis is over, the reciprocal deposit system under this bill will allow community banks to maximize deposits and keep the money fully protected.

(Opposed) None.

Persons Testifying: Representative Kirby, prime sponsor; Brad Tower, Community Bankers of Washington; and Reginald Truman, Promontory and Financial Network.

Persons Signed In To Testify But Not Testifying: None.