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New Hampshire Government Finance Officers Association “ Investing and Protecting Public Funds”

New Hampshire Government Finance Officers Association “ Investing and Protecting Public Funds”. Annual Meeting - 2008 Joe DiNuzzo, Counsel (202) 898-7349. FDIC Involvement in Protecting Public Funds. Provides Deposit Insurance Recognizes Properly Pledged Assets.

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New Hampshire Government Finance Officers Association “ Investing and Protecting Public Funds”

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  1. New Hampshire Government Finance Officers Association“Investing and Protecting Public Funds” Annual Meeting - 2008 Joe DiNuzzo, Counsel (202) 898-7349

  2. FDIC Involvement in Protecting Public Funds • Provides Deposit Insurance • Recognizes Properly Pledged Assets

  3. What is the FDIC? • Independent Federal Agency • Chartered by Congress in 1933 • Insures “deposits” per FDIC-Insured Institution • Regulates State, Non-member Banks • Acts as receiver When an Insured Institution Fails

  4. FDIC Created in 1933

  5. Coverage Overview • Basic Amount: $100,000 • Certain Retirement Accounts Insured to $250,000 • Coverage Based on Ownership • Coverage Exceeds $100,000 in Many Situations

  6. Eligible Ownership Categories CERTAIN RETIREMENT IRREVOCABLE TRUST EMPLOYEE BENEFIT PLAN SINGLE CORPORATION PARTNERSHIP UNINCORPORATED ASSOCIATIONS JOINT REVOCABLE TRUST GOVERNMENT

  7. United States States Counties Municipalities District of Columbia Puerto Rico Other territories Indian tribes School districts Power districts Irrigation districts Bridge or port authorities Government AccountsPublic Units/Government Entities

  8. Public Unit Account Coverage Provided to each “official custodian” of each public unit or “political subdivision” • Deposits in a bank in same state: • $100,000 for all time and savings deposits • $100,000 for all demand deposits • Deposits in a bank in different state: • $100,000 for all deposits

  9. “Official Custodian” Appointed or elected official who has decision-making authority over funds in the account owned by the public unit

  10. Example – State and County Accounts will be insured separately because each accountholder is a separate government depositor recognized by FDIC

  11. Example – School Districts Accounts will be insured separately because each “school district” is a separate public depositor recognized by FDIC

  12. Example - Grant County Assumes deposits are placed in an FDIC-insured bank in the same state as the Public Unit

  13. Recommendation Deposit Insurance for Accounts Held by Government Depositors www.fdic.gov/deposit/deposits/FactSheet.html

  14. Sequence Upon Failure Upon a bank failure, public unit deposits are first protected by FDIC insurance and then by the market value of the assets pledged to secure the uninsured amount of the deposits. Preferred claims are paid before other claims against the receivership estate.

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  16. Recognizing Pledged Assets

  17. Pledged Assets • May the bank pledge assets to fully secure the deposit amount in excess of the insured limit? • Will the FDIC recognize the pledged assets if the bank should fail?

  18. Asset Pledging • Banks as regulated entities may only do what is expressly permitted • National Banks are permitted to secure public deposits • State banks may secure public deposits if permitted to do so under applicable state law

  19. FDIC Recognition of Pledged Assets Section 13(e) of FDI Act: No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it . . . either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement—      (A)  is in writing, (B)  was executed by the depository institution and any person claiming an adverse interest thereunder . . . contemporaneously with the acquisition of the asset by the depository institution,  (C)  was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and      (D)  has been, continuously, from the time of its execution, an official record of the depository institution. (12 U.S.C. 1823(e))

  20. FDIA Requirements Secret Agreement Provision – “any agreement which does not meet the requirements set forth in section 13(e) shall not form the basis of, or substantially comprise, a claim against the receiver or the Corporation.” (12 U.S.C. 1821(d)(9)(A))

  21. FDIA Requirements Exemptions From Contemporaneous Execution Requirement. An agreement to provide for the lawful collateralization of-- deposits of, or other credit extension by, a Federal, State, or local governmental entity . . ., including an agreement to provide collateral in lieu of a surety bond … shall not be deemed invalid . . . solely because such agreement was not executed contemporaneously with the acquisition of the collateral or because of pledges, delivery, or substitution of the collateral made in accordance with such agreement.

  22. Related FDIC Policy Statements • Policy Statement on Collateral An FDIC receiver can not avoid perfected security agreements • The FDIC will not enforce the contemporaneous requirement against anyone • Policy Statement on Secret Agreements Includes a general discussion of enforcement procedures • 62 Fed. Reg. 5984, February 10, 1997

  23. Seven Conditions • Valid and enforceable security agreement under applicable state law • Perfected security interest in collateral as of the date the FDIC appointed receiver • Arrangement bona fide and arm’s length • Secured party not an insider or affiliate of failed institution • Security interest in the collateral and secured obligation not avoidable under other provisions of law, such as the law of fraudulent conveyances • Security interest not taken in contemplation of institution’s insolvency • The obligation for which the security pledged fixed obligation of institution prior to failure

  24. The Delegation Issue • What is meant by: “approved by the board of directors of the depository institution or its loan committee” • Must every transaction go to the bank’s board of directors or can the board delegate the authority to any employee?

  25. The FDIC does not require every transaction to be reviewed by the board • The board may fulfill its function by setting parameters and authorizing a particular officer to carry out its wishes • The officer is performing ministerial acts on behalf of the board, not making decisions (FDIC Interpretive letters)

  26. Official Record • Corporate resolutions • Specific officer authorized by the board of board of directors to execute agreements securing public deposits

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