senate Bill S5135

Authorizes the state, local governments and public authorities to arrange for redeposit of moneys through a deposit placement program

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Bill Status


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor
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actions

  • 03 / May / 2011
    • REFERRED TO LOCAL GOVERNMENT
  • 04 / Jan / 2012
    • REFERRED TO LOCAL GOVERNMENT
  • 06 / Feb / 2012
    • REPORTED AND COMMITTED TO FINANCE
  • 18 / Apr / 2012
    • 1ST REPORT CAL.528
  • 19 / Apr / 2012
    • 2ND REPORT CAL.
  • 25 / Apr / 2012
    • ADVANCED TO THIRD READING
  • 12 / Jun / 2012
    • SUBSTITUTED BY A8971

Summary

Authorizes the state, local governments and public authorities to arrange for redeposit of moneys through a deposit placement program through a bank or trust company that serves as custodian with respect to the moneys and arranges for the redeposit of the moneys in one or more banking institutions, the monies being secured, provided that the depository receives deposits from customers of other financial institutions that are at least equal to the amount of the moneys so invested.

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Bill Details

See Assembly Version of this Bill:
A8971
Versions:
S5135
Legislative Cycle:
2011-2012
Law Section:
General Municipal Law
Laws Affected:
Amd §§10 & 11, Gen Muni L; amd §106, St Fin L; add §2927, Pub Auth L

Votes

8
0
8
Aye
0
Nay
0
aye with reservations
0
absent
0
excused
0
abstained
show Local Government committee vote details

Sponsor Memo

BILL NUMBER:S5135

TITLE OF BILL:
An act
to amend
the general municipal law, the state finance law and the public
authorities law, in relation to authorizing the state, local governments
and public authorities to arrange for redeposit of moneys through a
deposit placement program

PURPOSE OR GENERAL IDEA OF BILL:
To provide alternative options for obtaining FDIC insurance coverage
for government deposits placed in bank accounts, thereby reducing the
cost of collateralizing such funds.

SUMMARY OF SPECIFIC PROVISIONS:
Amends appropriate sections of Law to allow 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
following 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 government; the full amount of the principal
and accrued interest are insured by the FDIC; the local bank acts as
custodian for the 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, government is 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.

Further, the bill addresses an area of the laws protecting deposits
and investments of public funds that have not kept pace with changing
federal deposit insurance coverage provisions. New York's system of
safeguarding public funds has proven extremely effective throughout
virtually every economic and interest rate cycle in protecting every
dollar of funds deposited in an FDIC-insured bank or trust company
from loss. The system relies on full collateralization (in some
cases, over collateralization) of deposit in excess of deposit
insurance limits. However, the provision dealing with those deposits
covered by FDIC insurance has not been changed since first enacted.

Currently, the FDIC provides 100% coverage for deposits in
non-interest-bearing transaction accounts and coverage of $250,000 per
depositor for deposits in all other accounts. However, over the past
ten years, the FDIC has also acknowledged coverage far in excess of

the $250,000 per depositor limit for accounts that are not
non-interest bearing transaction accounts. If a deposit in an
FDIC-insured bank or
trust company is divided into multiple deposits, all under the
$250,000 limit, and deposits in that amount are made into other banks
and trust companies, the amount insured in increased by a multiple
representing the total number of banks and trust companies into which
deposits are made. Thus, a $10 million local government deposit can
have 100% FDIC deposit insurance if it is split among more than 40
banks and trust companies.

At the same time, each of the banks into which a piece of the original
deposit was made, make a reciprocal deposit in the same amount back
into the bank that holds the government's original deposit. This
allows the full amount of the government's deposit to remain
available for loans and investments in the originating bank's
community. Because the cost of deposit insurance coverage is
generally much lower than the cost of alternative forms of
collateralization acceptable under the General Municipal Law, State
Finance Law and Public Authorities Law, converting deposits requiring
collateralization into deposits covered by deposit insurance with
materially reduce the costs of carrying deposits both for the
depository banks and for the local government making the deposit.

More than 40 states have already authorized the use of this type of
reciprocal deposit system. It is in
use in New York for every type of deposit - consumer,
business, tax-exempt organization - other than government deposits.

This legislation would allow New York State, its municipalities,
agencies and public authorities to reduce the cost of making
deposits, to more easily track and manage the collateral backing
deposits, and to speed recovery of funds in the failure of a bank or
trust company.

LEGISLATIVE HISTORY:
This is a 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.

view bill text
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  5135

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                               May 3, 2011
                               ___________

Introduced  by  Sen. MARTINS -- read twice and ordered printed, and when
  printed to be committed to the Committee on Local Government

AN ACT to amend the general municipal law, the state finance law and the
  public authorities law, in relation to authorizing  the  state,  local
  governments  and public authorities to arrange for redeposit of moneys
  through a deposit placement program

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Paragraph a of subdivision 2 of section 10 of the general
municipal law, as amended by chapter 623 of the laws of 1998, is amended
to read as follows:
  a. (I) The governing board of every local government  shall  designate
one  or  more  banks or trust companies for the deposit of public funds,
the disposition of which is not otherwise provided for by law,  received
by  the  chief  fiscal officer or any other officer authorized by law to
make deposits.  Such designation shall be by resolution of the governing
board or, in the case of a city, such other body as may be authorized or
required by law to designate depositaries.  Such resolution shall speci-
fy the maximum amount which may be kept on deposit at any time  in  each
such  bank  or  trust  company.    Such  designations and amounts may be
changed at any time by further resolution.
  (II) THE GOVERNING BOARD OF A LOCAL GOVERNMENT THAT HAS DESIGNATED ONE
OR MORE BANKS OR TRUST COMPANIES FOR THE DEPOSIT OF PUBLIC FUNDS  PURSU-
ANT  TO  SUBPARAGRAPH  (I)  OF  THIS  PARAGRAPH  MAY, IN ITS DISCRETION,
AUTHORIZE THE DESIGNATED BANK OR TRUST COMPANY TO ARRANGE FOR THE  REDE-
POSIT  OF  THE  LOCAL  GOVERNMENT'S  FUNDS IN ONE OR MORE BANKING INSTI-
TUTIONS, AS DEFINED IN SECTION  NINE-R  OF  THE  BANKING  LAW,  FOR  THE
ACCOUNT  OF  THE  LOCAL  GOVERNMENT, THROUGH A DEPOSIT PLACEMENT PROGRAM
THAT MEETS ALL OF THE FOLLOWING CONDITIONS:
  (A) ON OR AFTER  THE  DATE  THAT  THE  LOCAL  GOVERNMENT'S  FUNDS  ARE
RECEIVED,  THE  DESIGNATED  BANK  OR  TRUST COMPANY (I) ARRANGES FOR THE

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD11304-01-1

S. 5135                             2

REDEPOSIT OF SUCH FUNDS INTO DEPOSIT ACCOUNTS IN  ONE  OR  MORE  BANKING
INSTITUTIONS  AND (II) SERVES AS CUSTODIAN FOR THE LOCAL GOVERNMENT WITH
RESPECT TO THE FUNDS REDEPOSITED INTO SUCH ACCOUNTS.
  (B)  LOCAL  GOVERNMENT  FUNDS  DEPOSITED IN A DESIGNATED BANK OR TRUST
COMPANY IN ACCORDANCE WITH THIS SUBPARAGRAPH AND HELD IN THE  DESIGNATED
BANK  OR  TRUST  COMPANY  IN EXCESS OF THE AMOUNT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION PENDING REDEPOSIT OF THE FUNDS PURSUANT TO
THIS SUBPARAGRAPH SHALL BE SECURED IN ACCORDANCE WITH SUBDIVISION  THREE
OF THIS SECTION.
  (C)  THE  FULL  AMOUNT  OF  LOCAL  GOVERNMENT FUNDS REDEPOSITED BY THE
DESIGNATED BANK OR TRUST COMPANY INTO DEPOSIT ACCOUNTS IN BANKING INSTI-
TUTIONS PURSUANT TO THIS SUBPARAGRAPH (PLUS ACCRUED  INTEREST,  IF  ANY)
SHALL BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
  (D)  AT  THE SAME TIME THAT THE MONEY OF THE LOCAL GOVERNMENT IS REDE-
POSITED PURSUANT TO THIS SUBPARAGRAPH, THE SELECTED DEPOSITORY  RECEIVES
AN  AMOUNT  OF  DEPOSITS  FROM CUSTOMERS OF OTHER FINANCIAL INSTITUTIONS
PURSUANT TO THE DEPOSIT PLACEMENT PROGRAM THAT ARE AT LEAST EQUAL TO THE
AMOUNT OF THE LOCAL GOVERNMENT'S FUNDS  REDEPOSITED  BY  THE  DESIGNATED
BANK OR TRUST COMPANY.
  S  2.  Subdivision  2  of  section 11 of the general municipal law, as
amended by chapter 708 of the laws  of  1992,  is  amended  to  read  as
follows:
  2. A. The governing board of any local government or, if the governing
board  so  delegates,  the  chief fiscal officer or other officer having
custody of the moneys may temporarily invest  moneys  not  required  for
immediate  expenditure,  except moneys the investment of which is other-
wise provided for by law, EITHER: (1) in special time  deposit  accounts
in,  or  certificates  of  deposit  issued  by,  a bank or trust company
located and authorized to do business in this state[, provided  however,
that]; OR (2) IN ACCORDANCE WITH ALL OF THE FOLLOWING CONDITIONS:
  (I)  THE  MONEYS  ARE INVESTED THROUGH A BANK OR TRUST COMPANY LOCATED
AND AUTHORIZED TO DO BUSINESS IN THIS STATE;
  (II) THE BANK OR TRUST COMPANY ARRANGES FOR THE DEPOSIT OF THE  MONEYS
IN  CERTIFICATES  OF  DEPOSIT  IN  ONE  OR MORE BANKING INSTITUTIONS, AS
DEFINED IN SECTION NINE-R OF THE BANKING LAW, FOR  THE  ACCOUNT  OF  THE
LOCAL GOVERNMENT;
  (III)  THE  FULL AMOUNT OF PRINCIPAL AND ACCRUED INTEREST OF EACH SUCH
CERTIFICATE OF DEPOSIT MUST BE INSURED BY THE FEDERAL DEPOSIT  INSURANCE
CORPORATION;
  (IV) THE BANK OR TRUST COMPANY ACTS AS CUSTODIAN FOR THE LOCAL GOVERN-
MENT  WITH  RESPECT TO SUCH CERTIFICATES OF DEPOSIT ISSUED FOR THE LOCAL
GOVERNMENT'S ACCOUNT; AND
  (V) AT THE SAME TIME THAT THE LOCAL GOVERNMENT'S MONEYS ARE  DEPOSITED
AND  THE CERTIFICATES OF DEPOSIT ARE ISSUED FOR THE ACCOUNT OF THE LOCAL
GOVERNMENT, THE BANK OR TRUST COMPANY RECEIVES  AN  AMOUNT  OF  DEPOSITS
FROM  CUSTOMERS OF OTHER FINANCIAL INSTITUTIONS EQUAL TO OR GREATER THAN
THE AMOUNT OF THE MONEYS INVESTED BY THE LOCAL  GOVERNMENT  THROUGH  THE
BANK OR TRUST COMPANY.
  B.  FOR  ANY  INVESTMENT MADE PURSUANT TO PARAGRAPH A OF THIS SUBDIVI-
SION, such time deposit account or certificate of deposit shall be paya-
ble within such time as the proceeds shall be needed  to  meet  expendi-
tures for which such moneys were obtained and provided further that such
time  deposit  account  or certificate of deposit be secured in the same
manner as is provided for securing deposits of public funds by  subdivi-
sion three of section ten of this article.

S. 5135                             3

  S  3.  Section 106 of the state finance law is amended by adding a new
subdivision D to read as follows:
  D.  IN  LIEU  OF  A SECURITY BOND AS PRESCRIBED UNDER SUBDIVISION A OF
THIS SECTION OR OTHER SECURITY AS PRESCRIBED UNDER SUBDIVISION B OF THIS
SECTION, THE COMPTROLLER MAY AUTHORIZE A DESIGNATED BANK OR TRUST COMPA-
NY TO ARRANGE FOR THE REDEPOSIT OF THE MONEYS THROUGH A  DEPOSIT  PLACE-
MENT PROGRAM THAT MEETS ALL OF THE FOLLOWING CONDITIONS:
  (1) THE DESIGNATED BANK OR TRUST COMPANY ARRANGES FOR THE REDEPOSIT OF
THE  MONEYS INTO DEPOSIT ACCOUNTS WITH ONE OR MORE BANKING INSTITUTIONS,
AS DEFINED IN SECTION NINE-R OF THE BANKING LAW, FOR THE ACCOUNT OF  THE
STATE,  AND SERVES AS CUSTODIAN FOR THE STATE WITH RESPECT TO THE MONEYS
REDEPOSITED INTO SUCH DEPOSIT ACCOUNTS.
  (2) MONEYS HELD BY A DESIGNATED BANK OR TRUST COMPANY PENDING REDEPOS-
IT PURSUANT TO PARAGRAPH ONE OF THIS SUBDIVISION THAT ARE IN  EXCESS  OF
THE AMOUNT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION SHALL BE
SECURED IN ACCORDANCE WITH SUBDIVISION A OR B OF THIS SECTION.
  (3)  THE  FULL  AMOUNT OF THE MONEYS REDEPOSITED INTO DEPOSIT ACCOUNTS
PURSUANT TO PARAGRAPH ONE OF THIS SUBDIVISION, PLUS ACCRUED INTEREST, IF
ANY, SHALL BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
  (4) AT THE SAME TIME THAT THE MONEYS ARE REDEPOSITED PURSUANT TO PARA-
GRAPH ONE OF THIS SUBDIVISION, THE  DESIGNATED  BANK  OR  TRUST  COMPANY
RECEIVES  AN AMOUNT OF DEPOSITS FROM CUSTOMERS OF OTHER FINANCIAL INSTI-
TUTIONS PURSUANT TO THE DEPOSIT PLACEMENT  PROGRAM  THAT  ARE  AT  LEAST
EQUAL  TO THE AMOUNT OF THE MONEYS REDEPOSITED BY THE DESIGNATED BANK OR
TRUST COMPANY.
  S 4. The public authorities law is amended by  adding  a  new  section
2927 to read as follows:
  S  2927.  INVESTMENT OF FUNDS BY PUBLIC AUTHORITIES AND PUBLIC BENEFIT
CORPORATIONS IN DEPOSITS INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPO-
RATION.
  NOTWITHSTANDING ANY INCONSISTENT PROVISION  OF  THIS  CHAPTER  OR  ANY
OTHER  GENERAL,  SPECIAL  OR LOCAL LAW, EVERY CORPORATION WHETHER OR NOT
SUCH CORPORATION IS OTHERWISE GOVERNED BY THIS CHAPTER, MAY  TEMPORARILY
INVEST  MONEYS NOT REQUIRED FOR IMMEDIATE EXPENDITURE IN ACCORDANCE WITH
THE FOLLOWING CONDITIONS:
  1. THE MONEYS ARE INVESTED THROUGH A BANK OR TRUST COMPANY LOCATED AND
AUTHORIZED TO DO BUSINESS IN THIS STATE SELECTED BY THE CORPORATION;
  2. THE SELECTED BANK OR TRUST COMPANY ARRANGES FOR  THE  REDEPOSIT  OF
THE  MONEYS IN CERTIFICATES OF DEPOSIT AND OTHER DEPOSIT ACCOUNTS IN ONE
OR MORE BANKING INSTITUTIONS, AS DEFINED IN SECTION NINE-R OF THE  BANK-
ING LAW, FOR THE ACCOUNT OF THE CORPORATION;
  3.  THE  FULL  AMOUNT  OF  PRINCIPAL AND ACCRUED INTEREST OF EACH SUCH
DEPOSIT IS INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION;
  4. THE SELECTED BANK OR TRUST COMPANY IN THIS STATE ACTS AS  CUSTODIAN
FOR  THE  CORPORATION  WITH RESPECT TO THE FUNDS REDEPOSITED PURSUANT TO
THIS SECTION; AND
  5. AT THE SAME TIME THAT  THE  CORPORATION'S  MONEYS  ARE  REDEPOSITED
PURSUANT  TO  THIS  SECTION,  THE SELECTED BANK OR TRUST COMPANY IN THIS
STATE RECEIVES AN AMOUNT OF DEPOSITS FROM CUSTOMERS OF  OTHER  FINANCIAL
INSTITUTIONS  EQUAL TO OR GREATER THAN THE AMOUNT OF THE MONEYS INVESTED
BY THE CORPORATION THROUGH THE SELECTED BANK OR TRUST  COMPANY  IN  THIS
STATE.
  S 5. This act shall take effect immediately.

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