BILL ANALYSIS
AB 1344
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Date of Hearing: June 21, 2010
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
SB 1344 (Kehoe) - As Amended: April 5, 2010
SENATE VOTE : 34-0
SUBJECT : Local agency investments
SUMMARY : Deletes the sunset date on current law provisions
that allow local agencies to invest up to 30% of surplus funds
in certificates of deposit (CD) 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.
EXISTING LAW
1)Allows a local agency, at its discretion, to invest a portion
of its surplus funds in CDs, sit 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
with the following conditions:
a) The local agency shall choose a nationally or state
chartered commercial bank, savings bank, savings and loan
association, or credit union in this state 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;
d) The selected depository institution shall serve as a
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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;
f) A local agency may not invest surplus funds with a
selected depository institution for placement as CDs
pursuant to this section on or after January 1, 2012. A
local agency's surplus funds, invested pursuant to this
section before January 1, 2012, may remain invested in CDs
issued through a private sector entity for the full term of
each CD;
g) Notwithstanding subdivisions (a) to (f), inclusive, no
credit union may act as a selected depository institution
under this section or Section 53635.8 unless both of the
following conditions are satisfied;
h) The credit union offers federal depository insurance
through the National Credit Union Administration; and,
i) The credit union is in possession of written guidance or
other written communication from the National Credit Union
Administration authorizing participation of
federally-insured credit unions in one or more CD 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.
[Government Code, Section 53601].
FISCAL EFFECT : None
COMMENTS :
SB 1344 deletes the January 1, 2012, sunset date on the statutes
authorizing local agencies to invest surplus funds in CDs at
financial institutions that use private sector entities to
assist in the placement of CDs. Additionally, the bill provides
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that only an agency which has authority under another provision
of law to invest funds may invest surplus funds in CDs at
financial institutions.
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 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
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 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 $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 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)
established Promontory Interfinancial Network, LLC, offered a
qualifying CD placement service. CDARS is still the only such
CD placement network that exists. Since 2006, 55 community
banks in California have received investments of over $2.2
billion of local agency deposits from counties, cities, special
districts, and other agencies through the CDARS network.
REGISTERED SUPPORT / OPPOSITION :
Support
California Independent Bankers (Sponsor)
California Bankers Association
California Credit Union League
AB 1344
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California Municipal Treasurers Association (SMTA)
California Special Districts Association (CSDA)
City of Santa Rosa
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081