Expands the definition of banking entities authorized for the deposit of temporary investments funds

BILL NUMBER:A9099

Title of bill

An act to amend the general municipal law, in relation to expanding the definition of banking entities authorized for the deposit of temporary investments funds

Purpose or general idea of bill

To provide alternative options for obtaining FDIC insurance coverage for local government deposits placed in bank accounts, thereby reducing the cost of collateralizing such funds.

Summary of specific provisions

Amends Section 11(2) of the General Municipal Law to allow local government deposits to be invested through local banks in FDIC-insured accounts through a reciprocal deposit-taking program which provides deposit insurance coverage in excess of $250,000.

Specifically, the bill allows investments which meet all of the follow- ing conditions: moneys are invested through a bank located in this state; the bank arranges for the deposit of funds in other banking institutions, as defined in section 9-r of the Banking Law, for the account of the local government; the full amount of the principal and accrued interest are insured by the FDIC; the local bank acts as custo- dian for the local government; and the local bank receives an equal or greater amount of funds from other depository institutions.

Justification

This bill provides an alternative option for ensuring the security of public deposits. Currently, local governments are authorized to temporarily invest moneys in special time deposit accounts or certificates of deposit issued by a bank or trust company located in this state. When the amount deposited exceeds FDIC insurance coverage, the:, bank must either secure the deposits by pledging certain eligible securities which have an aggregate market value that is at least equal to the aggregate amount of the public deposits, or by offering an eligi- ble surety bond or letter of credit by a Federal Home Loan Bank. While these requirements help ensure the security of the deposits, they also result in increased costs.

Over the past couple of years, several states have modified their laws and policies to allow an alternative arrangement for securing public deposits. Under this scenario, the local bank arranges for the deposit of the public funds in other FDIC-insured banks which issue certificates of deposit for the account of the local government. As a result, the full amount of principal and accrued interest for each CD are eligible for FDIC insurance.

This bill would allow a similar option for public deposits made by local governments in New York State. In order to ensure that the total amount of the local government's investment remains available for lending with- in the local community, the bill would require that the depository bank must receive deposits from other insured institutions which are equiv- alent to the total amount of the local . government's investment.

Prior legislative h story

New bill

Fiscal implications

None to the State. Local governments are expected to benefit from the reduced costs involved in collateralizing deposits,

Effective date

Immediately