1.1                          A bill for an act 
  1.2             relating to financial institutions; providing an 
  1.3             alternative method for collateralizing deposits of 
  1.4             public funds; clarifying existing collateralization 
  1.5             language; amending Minnesota Statutes 2002, sections 
  1.6             118A.01, subdivision 2, by adding a subdivision; 
  1.7             118A.03, subdivision 1; Minnesota Statutes 2003 
  1.8             Supplement, section 118A.03, subdivision 3; proposing 
  1.9             coding for new law in Minnesota Statutes, chapter 118A.
  1.10  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.11     Section 1.  Minnesota Statutes 2002, section 118A.01, is 
  1.12  amended by adding a subdivision to read: 
  1.13     Subd. 1a.  [BANKING DAY.] "Banking day" has the meaning 
  1.14  given in Federal Reserve Board regulation CC, Code of Federal 
  1.15  Regulations, chapter 12, section 229.2(f), and incorporates a 
  1.16  financial institution's cutoff hour established under section 
  1.17  336.4-108. 
  1.18     Sec. 2.  Minnesota Statutes 2002, section 118A.01, 
  1.19  subdivision 2, is amended to read: 
  1.20     Subd. 2.  [GOVERNMENT ENTITY.] (a) "Government entity" 
  1.21  means a county, city, town, school district, hospital district, 
  1.22  public authority, public corporation, public commission, special 
  1.23  district, any other political subdivision, except an entity 
  1.24  whose investment authority is specified under chapter 11A or 
  1.25  356A. 
  1.26     (b) For the purposes of sections 118A.02 ~~and~~, 118A.03, and 
  1.27  118A.035 only, the term includes an American Indian tribal 
  2.1   government entity located within a federally recognized American 
  2.2   Indian reservation. 
  2.3      Sec. 3.  Minnesota Statutes 2002, section 118A.03, 
  2.4   subdivision 1, is amended to read: 
  2.5      Subdivision 1.  [FOR DEPOSITS BEYOND INSURANCE.] To the 
  2.6   extent that funds ~~deposited are in excess of~~ on deposit at the 
  2.7   close of the financial institution's banking day exceed 
  2.8   available federal deposit insurance, the government entity shall 
  2.9   require the financial institution to furnish collateral security 
  2.10  or a corporate surety bond executed by a company authorized to 
  2.11  do business in the state. 
  2.12     Sec. 4.  Minnesota Statutes 2003 Supplement, section 
  2.13  118A.03, subdivision 3, is amended to read: 
  2.14     Subd. 3.  [AMOUNT.] The total amount of the collateral 
  2.15  computed at its market value shall be at least ten percent more 
  2.16  than the amount on deposit plus accrued interest at the close of 
  2.17  the ~~business~~ financial institution's banking day, except that 
  2.18  where the collateral is irrevocable standby letters of credit 
  2.19  issued by Federal Home Loan Banks, the amount of collateral 
  2.20  shall be at least equal to the amount on deposit plus accrued 
  2.21  interest at the close of the ~~business~~ financial institution's 
  2.22  banking day.  The financial institution may furnish both a 
  2.23  surety bond and collateral aggregating the required amount. 
  2.24     Sec. 5.  [118A.035] [ALTERNATIVE COLLATERALIZATION METHOD.] 
  2.25     Subdivision 1.  [ELIGIBLE BANKS.] (a) For purposes of this 
  2.26  section, an "eligible bank" means a bank, savings association, 
  2.27  or industrial loan and thrift company, which, according to its 
  2.28  most recent report of condition and income or thrift financial 
  2.29  report, as applicable, qualifies as "well-capitalized" under the 
  2.30  uniform capital requirements established by the federal banking 
  2.31  regulators.  At its discretion, an eligible bank may choose to 
  2.32  use this section in lieu of section 118A.03. 
  2.33     (b) If a depository which has been an eligible bank no 
  2.34  longer qualifies as "well capitalized," the bank, savings 
  2.35  association, or industrial loan and thrift company shall have 30 
  2.36  days to raise its capital ratios to the "well capitalized" 
  3.1   levels.  A depository that does not do so within 30 days may no 
  3.2   longer use this section and must use section 118A.03 to 
  3.3   collateralize its public deposits. 
  3.4      Subd. 2.  [PROTECTION REQUIRED.] An eligible bank using 
  3.5   this section must ensure that its public deposits are either 
  3.6   covered by federal deposit insurance or are protected under this 
  3.7   section. 
  3.8      Subd. 3.  [SURETY BOND OR COLLATERAL ACCEPTABLE.] To the 
  3.9   extent that public deposits are not covered by federal deposit 
  3.10  insurance, an eligible bank may obtain a corporate surety bond 
  3.11  executed by a company authorized to issue surety bonds in this 
  3.12  state, may pledge collateral, or may furnish both a surety bond 
  3.13  and collateral totaling the required amount.  An eligible bank 
  3.14  choosing to pledge collateral may pledge any of the collateral 
  3.15  types listed in section 118A.03, subdivision 2. 
  3.16     Subd. 4.  [AMOUNT OF COLLATERAL.] (a) For purposes of 
  3.17  determining the total amount of its surety bond and its 
  3.18  collateral, an eligible bank may aggregate, at the close of each 
  3.19  banking day of the eligible bank, the total amount of its public 
  3.20  funds that are not covered by federal deposit insurance.  The 
  3.21  bank must, at all times, ensure that the total amount of its 
  3.22  surety bond and its collateral has a value at least equal to 
  3.23  that amount at the close of each banking day of the eligible 
  3.24  bank.  Pledged securities must be valued at the lesser of their 
  3.25  face value or their market value.  
  3.26     (b) To qualify under this section, surety bonds and 
  3.27  irrevocable letters of credit must be issued in a manner 
  3.28  approved by the state auditor.  The other types of collateral 
  3.29  must be assigned to public depositors in a manner consistent 
  3.30  with section 118A.03, subdivision 4, and must be held by a 
  3.31  safekeeping agent as specified in section 118A.03, subdivision 7.
  3.32     Subd. 5.  [REQUIRED REPORTING.] (a) Each eligible bank 
  3.33  using this section must furnish a report to the state auditor at 
  3.34  the same time it completes its report of condition and income or 
  3.35  thrift financial report, as applicable.  The report must 
  3.36  indicate the total amount of public deposits it holds, the total 
  4.1   amount of uninsured public deposits, and the amount and type of 
  4.2   its surety bond and collateral pledged for those deposits.  The 
  4.3   eligible bank must also list the safekeeping party which is 
  4.4   holding its collateral.  The eligible bank must certify that the 
  4.5   total of its surety bond and its collateral pledged will exceed 
  4.6   the aggregate amount of its public funds that are not covered by 
  4.7   federal deposit insurance, consistent with this section. 
  4.8      (b) Each safekeeping agent holding securities on behalf of 
  4.9   an eligible bank using this section must also file a quarterly 
  4.10  report to the state auditor.  The report must list the name of 
  4.11  the eligible bank and the amount and type of securities held by 
  4.12  the safekeeping agent that the eligible bank has pledged for 
  4.13  public deposits. 
  4.14     Subd. 6.  [COLLECTION IN THE EVENT OF DEFAULT.] Consistent 
  4.15  with their assignment, the public depositors have the right to 
  4.16  collect on their surety bond and their assigned collateral if 
  4.17  the eligible bank closes.  The state auditor must work with the 
  4.18  receiver of the failed institution to ensure that the claims of 
  4.19  all public entities are handled properly. 
  4.20     Subd. 7.  [IMMUNITY.] Neither a government entity nor any 
  4.21  official responsible for the custody of its funds is personally 
  4.22  liable for any loss sustained from a deposit of funds with an 
  4.23  eligible bank in accordance with this section. 
  4.24     Sec. 6.  [EFFECTIVE DATE.] 
  4.25     Sections 1 to 5 are effective the day following final 
  4.26  enactment.