BILL ANALYSIS Ó
AB 279
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 279 (Dickinson)
As Amended June 26, 2013
Majority vote
-----------------------------------------------------------------
|ASSEMBLY: |77-0 |(April 15, |SENATE: |33-0 |(July 8, 2013) |
| | |2013) | | | |
-----------------------------------------------------------------
Original Committee Reference: L. GOV.
SUMMARY : Authorizes local agencies, until January 1, 2017, to
invest up to 30% of their surplus funds through a private sector
deposit placement service, as specified.
The Senate amendments :
1)Provide that the new authority granted by this bill to expand
the types of deposits a local agency can invest surplus funds
into is effective until January 1, 2017, upon which time the
statute will revert back to the current authorization under
existing law.
2)Make changes, until January 1, 2017, to the authority of local
agencies to invest in deposits, as follows:
a) Prohibit local agencies from investing more than 10% of
the agency's funds to any one private sector entity that
assists in deposit placement service;
b) Require every depository institution where funds are
placed to be capitalized at a level that is sufficient, and
be otherwise eligible, to receive such deposits pursuant to
regulations of the Federal Deposit Insurance Corporation
(FDIC) or the National Credit Union Administration (NCUA),
as applicable; and,
c) Delete the exemption of deposits received by a selected
depository institution from other financial institutions
through a deposit placement service, if deposits are
insured by FDIC or NCUA, from public funds reporting
requirements in existing law.
EXISTING LAW :
AB 279
Page 2
1)Allows a local agency to invest a portion of its surplus funds
in certificates of deposits (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.
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 FDIC or the NCUA;
d) The selected depository institution shall serve as a
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:
AB 279
Page 3
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.
AS PASSED BY THE ASSEMBLY , this bill:
1)Allowed local agencies to invest surplus funds in deposits, in
the same manner as CDs.
2)Exempted deposits received by a selected depository
institution from other financial institutions through a
deposit placement service, if deposits are insured by the FDIC
or the NCUA, from public funds reporting requirements in
existing law.
3)Made technical and clarifying changes.
FISCAL EFFECT : None
COMMENTS : The authorization for local agencies to invest
surplus funds in CDs was put into place by AB 2011 (Vargas),
Chapter 459, Statutes of 2006. Existing law requires local
agency funds to either be protected by federal deposit insurance
or secured by collateral. Prior to the bill, if a local agency
wanted to make a deposit of over $100,000, the FDIC insurance
limit at the time, the bank had to pledge collateral to secure
the deposit. This collateralization requirement was a barrier
to most small community banks accepting deposits of local agency
funds, which were generally in amounts much greater than
$100,000.
AB 2011 (Vargas) allowed local agencies to use a "deposit
placement service" which takes a bank customer's large deposit
and breaks it into amounts of less than the FDIC insurance
limit, $100,000. These amounts are then placed in CDs at other
banks within its network, ensuring FDIC protection on the
customer's full deposit. The other banks then simultaneously
AB 279
Page 4
send an equal amount of funds back to the original bank,
enabling it to have the full amount of the original deposit
available for lending or other purposes. When AB 2011 became
law, only one national network, the Certificate of Deposit
Account Registry Service (CDARS), Promontory Interfinancial
Network, LLC, offered a qualifying CD placement service.
According to the author, CDARS is still the only such CD
placement network that exists.
SB 1344 (Kehoe), Chapter 112, Statutes of 2010, eliminated the
sunset date contained in
AB 2011 (Vargas) and permanently authorized local agencies to
use a deposit placement service. Current law allows local
agencies to invest in CDs, but excludes other types of deposits
that make up a substantial portion of public funds including
money market deposit accounts or demand deposit accounts that
are more accessible for short-term needs. This bill expands the
types of deposits local agencies can invest up to 30% of surplus
funds into depository institutions until January 1, 2017. This
bill also provides that on January 1, 2017, the statute will
revert to existing law which authorizes local agencies to invest
up to 30% of surplus funds only in CDs. According to the
author, this bill further encourages local agencies to deposit
funds into local banks, and may spur more local investment and
local lending. This bill is co-sponsored by the California
Bankers Association and the California Independent Bankers.
The author argues that this bill 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 federal deposit insurance or secured by collateral,
once again creating a barrier to most small community banks
accepting local agency funds exceeding $250,000.
Support arguments: Supporters argue that community banks may be
limited in their ability to attract a substantial portion of
public funds that are placed in transaction and money market
deposit accounts because current law only applies to CDs. This
bill gives these banks another opportunity to secure these local
agency deposits.
AB 279
Page 5
Opposition arguments: None on file
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958
FN: 0001368