1.1                          A bill for an act 
  1.2             relating to local government; providing an alternative 
  1.3             collateral pool for deposit and investment of local 
  1.4             public funds; amending Minnesota Statutes 1998, 
  1.5             sections 118A.01, by adding subdivisions; and 118A.02, 
  1.6             by adding a subdivision; proposing coding for new law 
  1.7             in Minnesota Statutes, chapter 118A. 
  1.8   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.9      Section 1.  Minnesota Statutes 1998, section 118A.01, is 
  1.10  amended by adding a subdivision to read: 
  1.11     Subd. 5.  [COMMISSIONER.] "Commissioner" means commissioner 
  1.12  of commerce. 
  1.13     Sec. 2.  Minnesota Statutes 1998, section 118A.01, is 
  1.14  amended by adding a subdivision to read: 
  1.15     Subd. 6.  [QUALIFYING FINANCIAL INSTITUTION.] "Qualifying 
  1.16  financial institution" means a financial institution other than 
  1.17  a credit union. 
  1.18     Sec. 3.  Minnesota Statutes 1998, section 118A.02, is 
  1.19  amended by adding a subdivision to read: 
  1.20     Subd. 3.  [LOCATION OF DEPOSITORIES.] Deposits by counties 
  1.21  must be in depositories with a main office, a branch, or 
  1.22  detached facility in the county or in an adjoining county within 
  1.23  this state; by a city or its subdivisions in depositories with a 
  1.24  main office, a branch, or detached facility located in the 
  1.25  county in which the city is located or in an adjoining county 
  1.26  within this state, but if there is no depository in the county 
  2.1   in which the city is located or in an adjoining county, then in 
  2.2   any other depository located in this state; and by a school or 
  2.3   hospital district in a depository with a main office, a branch, 
  2.4   or detached facility within the district, but if there is no 
  2.5   depository in the district, then in any other depository located 
  2.6   in this state.  Deposits by any other government entity must be 
  2.7   in depositories with a main office, a branch, or detached 
  2.8   facility in the county in which the government entity is located 
  2.9   or in an adjoining county within this state. 
  2.10     Sec. 4.  [118A.035] [ALTERNATIVE COLLATERAL POOL FOR 
  2.11  QUALIFYING FINANCIAL INSTITUTIONS.] 
  2.12     Subdivision 1.  [ALTERNATIVE.] A qualifying financial 
  2.13  institution may furnish collateral to secure public funds 
  2.14  pursuant to the requirements of this section as an alternative 
  2.15  to section 118A.03.  The commissioner must adopt regulations 
  2.16  requiring that qualifying financial institutions deposit 
  2.17  collateral securities to secure public funds in each qualifying 
  2.18  financial institution.  The amount of collateral securities to 
  2.19  be pledged for the security of public deposits must be 
  2.20  established by rules consistent with this section. 
  2.21     Subd. 2.  [RESTRICTED ACCOUNT.] To secure public funds, a 
  2.22  qualifying financial institution must place required collateral 
  2.23  securities in a restricted account at a federal reserve bank, a 
  2.24  federal home loan bank, a trust department of a commercial bank, 
  2.25  or with another financial institution that is not owned or 
  2.26  controlled by the same institution or holding company.  The 
  2.27  qualifying financial institution shall deliver to the 
  2.28  commissioner a power of attorney authorizing the commissioner to 
  2.29  transfer or liquidate these securities in the event of a 
  2.30  default, financial failure, or insolvency of a qualifying 
  2.31  financial institution. 
  2.32     Subd. 3.  [COLLATERAL.] The commissioner shall periodically 
  2.33  determine a minimum ratio for collateral pledging for each 
  2.34  qualifying financial institution that accepts public deposits.  
  2.35  The minimum ratio must be established at a level estimated to 
  2.36  cause the aggregate amount of collateral required by all 
  3.1   qualifying financial institutions to be equal to the total 
  3.2   uninsured public funds held by any single qualifying financial 
  3.3   institution located within the state.  The minimum collateral 
  3.4   ratio for all qualifying financial institutions must not be less 
  3.5   than ten percent nor greater than 25 percent of each qualifying 
  3.6   financial institution's uninsured public funds. 
  3.7      Subd. 4.  [ADDITIONAL COLLATERAL.] The commissioner shall 
  3.8   adopt rules to require collateral in excess of the minimum 
  3.9   required under subdivision 3 from qualifying financial 
  3.10  institutions whose: 
  3.11     (1) deposits exceed the statewide average ratio of public 
  3.12  deposits to total deposits; and 
  3.13     (2) financial condition is weakening determined on the 
  3.14  basis of factors specified by the commissioner. 
  3.15     Subd. 5.  [VALUATION.] The commissioner shall adopt rules 
  3.16  to provide for the valuation of collateral if market value is 
  3.17  not readily determinable. 
  3.18     Subd. 6.  [REPORTING.] The commissioner shall adopt rules 
  3.19  governing reporting requirements and other administrative 
  3.20  procedures necessary to effectively implement this section. 
  3.21     Subd. 7.  [DEFAULT.] In the event of a default or 
  3.22  insolvency of a qualifying financial institution, the 
  3.23  commissioner shall implement the following procedures: 
  3.24     (1) ascertain the amount of public funds on deposit at the 
  3.25  defaulting qualifying financial institution and the amount of 
  3.26  deposit insurance applicable to such deposits; 
  3.27     (2) the potential loss of public depositors must be 
  3.28  calculated by compiling claims from such depositors.  The claims 
  3.29  must be validated.  The loss to public depositors must be 
  3.30  satisfied as far as possible, first through any applicable 
  3.31  deposit insurance, then through the sale of securities pledged 
  3.32  by the defaulting qualifying financial institution, and then 
  3.33  through the sale of the defaulting qualifying financial 
  3.34  institution's assets; 
  3.35     (3) if the loss to public depositors is not covered by 
  3.36  insurance and the proceeds of the defaulting qualifying 
  4.1   financial institution's assets and pledged collateral, the 
  4.2   commissioner shall provide coverage of the remaining loss by 
  4.3   assessment against other qualifying financial institutions' 
  4.4   pledged collateral.  The assessment must be determined by 
  4.5   multiplying the total amount of the remaining loss to all public 
  4.6   depositors by a percentage that represents the average of 
  4.7   Minnesota public funds deposits held by each qualifying 
  4.8   financial institution during the previous 12 months, divided by 
  4.9   the average total public deposits held by all qualifying 
  4.10  financial institutions during the same 12-month period.  Each 
  4.11  qualifying financial institution shall pay its assessment to the 
  4.12  commissioner within three business days after it receives notice 
  4.13  of assessment.  If a qualifying financial institution fails to 
  4.14  pay its assessment when due, the commissioner shall satisfy the 
  4.15  assessment by selling securities pledged by that qualifying 
  4.16  financial institution; and 
  4.17     (4) following collection of the assessments, the 
  4.18  commissioner shall distribute funds to the public depositors of 
  4.19  the defaulting qualifying financial institution according to 
  4.20  their validated claims.  If the assets available are less than 
  4.21  the total deposits, the commissioner shall make an additional 
  4.22  assessment against qualifying financial institutions using the 
  4.23  calculation methodology specified in clause (3).  Each 
  4.24  qualifying financial institution shall pay any additional 
  4.25  assessment to the commissioner within three business days after 
  4.26  it receives notice of the assessment.  Entities receiving 
  4.27  payment under this subdivision shall assign to the commissioner 
  4.28  any interest they may have in funds that subsequently become 
  4.29  available to depositors of the defaulting qualifying financial 
  4.30  institution. 
  4.31     Subd. 8.  [ADDITIONAL DEPOSIT.] If the commissioner sells a 
  4.32  qualifying financial institution's collateral securities, the 
  4.33  institution must deposit additional collateral to meet required 
  4.34  collateral levels. 
  4.35     Subd. 9.  [FEE.] The commissioner may assess a fee to 
  4.36  qualifying financial institutions participating in the 
  5.1   collateral pool established under this section.  The fee must be 
  5.2   assessed on a reasonable basis and total fees must not exceed 
  5.3   the cost to the commissioner of fulfilling the duties of the 
  5.4   commissioner under this section.