BILL ANALYSIS Ó
AB 279
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Date of Hearing: April 8, 2013
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
AB 279 (Dickinson) - As Amended: March 21, 2013
SUBJECT : Financial affairs.
SUMMARY : Expands a local agency's ability to invest surplus
funds in deposits rather than solely certificate of deposits
(CDs).
EXISTING LAW
1)Allows a local agency to invest a portion of its surplus funds
in CDs at a commercial bank, savings bank, savings and loan
association, or credit union that uses a private sector entity
that assists in the placement of CDs, provided that the
purchases of CDs, in total, do not exceed 30% of the agency's
funds. [Government Code, Section 53601.8 & 53635.8, all
further references are to the Government Code]
2) Provides that the following conditions apply for a local
agency to invest its surplus funds in CDs:
a) The local agency shall choose a nationally or state
chartered commercial bank, savings bank, savings and loan
association, or credit union in California to invest the
funds, which shall be known as the "selected" depository
institution;
b) The selected depository institution may submit the funds
to a private sector entity that assists in the placement of
CDs with one or more commercial banks, savings banks,
savings and loan associations, or credit unions that are
located in the United States, for the local agency's
account;
c) The full amount of the principal and the interest that
may be accrued during the maximum term of each CD shall at
all times be insured by the Federal Deposit Insurance
Corporation (FDIC) or the National Credit Union
Administration (NCUA);
d) The selected depository institution shall serve as a
AB 279
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custodian for each CD that is issued with the placement
service for the local agency's account;
e) At the same time the local agency's funds are deposited
and the CDs are issued, the selected depository institution
shall receive an amount of deposits from other commercial
banks, savings banks, savings and loan associations, or
credit unions that, in total, are equal to, or greater
than, the full amount of the principal that the local
agency initially deposited through the selected depository
institution for investment; and,
f) Notwithstanding subdivisions (a) to (e), inclusive, no
credit union may act as a selected depository institution
unless both of the following conditions are satisfied:
i) The credit union offers federal depository insurance
through the NCUA; and,
ii) The credit union is in possession of written
guidance or other written communication from the NCUA
authorizing participation of federally-insured credit
unions in one or more certificate of deposit placement
services and affirming that the moneys held by those
credit unions while participating in a deposit placement
service will at all times be insured by the federal
government.
FISCAL EFFECT : None
COMMENTS :
Existing law allows local agencies to invest up to 30% of their
surplus funds in CDs at depository institutions that use a
private sector placement service to insure any funds above the
FDIC limit of $250,000. This allows a local agency to deposit
funds into a CD at depository institutions and have it fully
protected even if the deposit is over $250,000. The bank takes
the deposit and use the placement service that divides the money
into amounts less than $250,000. These smaller deposits are in
turn parceled out to other banks where they are 100% insured by
the FDIC. Other banks using the placement service, deposit an
equal amount of funds in the original bank, therefore making the
full amount of the local government's deposit available for
lending in the community.
AB 279
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AB 279 expands current law so that the use of the placement
service is not limited to CDs but could also be used for other
types of deposits such as demand deposits. In more than 30
other states, local agencies can use this service for both
deposits and CDs.
So far, current law has helped commercial banks, savings banks,
saving and loan associations and credit unions attract $4.3
billion in deposits from local agencies. This money is
reinvested locally via loans to households and small businesses.
Since current law only applies to CDs, depository institutions
may be limited in their ability to attract a substantial portion
of public funds that are placed in transaction and money market
deposit accounts.
Additionally, AB 279 is essential because Congress did not
extend the Transaction Account Guarantee Program (TAGP) which
was started during the financial crisis to provide unlimited
insurance for non-interest bearing bank accounts used by small
companies and municipalities. Now that TAGP has expired, the
author and supporters are concerned because local agencies are
once again subject to the FDIC $250,000 insurance limit.
Current law requires local agency funds to either be protected
by FDIC or secured by collateral, once again creating a barrier
to most small community banks accepting funds exceeding
$250,000.
PREVIOUS LEGISLATION :
SB 1344 (Kehoe, Chapter 112 Statutes of 2010) Deleted the sunset
date on current law provisions that allow local agencies to
invest up to 30% of surplus funds in CDs with a commercial bank,
savings bank, or credit union. Additionally, provides that only
a local agency with existing legal authority to make investments
may invest surplus funds in CDs.
AB 2011(Vargas, Chapter 459, Statutes of 2006) Allowed a local
agency to invest specified funds into multiple CDs under certain
circumstances.
REGISTERED SUPPORT / OPPOSITION :
Support
AB 279
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California Independent Bankers (Sponsor)
California Bankers Association (Co-Sponsor)
California Credit Union League
Community Business Bank
Five Star Bank
Malaga Bank
The American Federation of State, County and Municipal Employees
(AFSCME), AFL-CIO
Vibra Bank
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081