2. Security for Public Deposits Act Presentation to Treasurers Association of Virginia and Commissioners of the Revenue Association of Virginia Security for Public Deposits Act Presentation to Treasurers Association of Virginia and Commissioners of the Revenue Association of Virginia Manju S. Ganeriwala State Treasurer January 26, 2009

3. 1 Presentation Outline I. Virginia Security for Public Deposits Act II. Definitions III.Program Overview IV.Statutes Related to SPDA and Public Officials V.Recent Developments VI.Statistics and Contacts

4. 2 Virginia Security for Public Deposits Act The Virginia Security for Public Deposits Act (SPDA) was enacted by the 1973 General Assembly as Chapter 23 of Title 2.1, Code of Virginia (1950), as amended. A recodification of the Code of Virginia placed SPDA under Chapter 44, Title 2.2. SPDA created a single body of law establishing a uniform method to secure public funds on deposit in financial institutions through the pledge of securities as collateral. SPDA centralized the procedures and methods to secure public deposits to promote efficiencies in administration throughout the Commonwealth. SPDA does not, of itself, require security for public deposits. All deposits that are required to be secured, whether by statute, by charter provision, or by the custodian of the funds, must be secured pursuant to SPDA. The Virginia Security for Public Deposits Act Regulations were enacted by the Treasury Board of the Commonwealth of Virginia on November 18, 1993.

5. 3 Definitions

6. 4 Section 2.2-4401 of the Code of Virginia provides that: public deposit means moneys of the Commonwealth or of any county, city, town or other political subdivision thereof, including moneys of any commission, institution, committee, board or officer of the foregoing and any state, circuit, county or municipal court, which moneys are deposited in any qualified public depository in any of the following types of accounts: non-negotiable or registered time deposits, demand deposits, savings deposits, and any other transaction accounts, and security for such deposit is required by other provisions of law, or is required due to an election of the public depositor. Public Deposits Defined

7. 5 Participants Defined Participants Defined Qualified Public Depository Qualified public depository means any national banking association, federal savings and loan association or federal savings bank located in Virginia, any bank, trust company or savings institution organized under Virginia law, or any state bank or savings institution organized under the laws of another state located in Virginia that receives or holds public deposits that are secured pursuant to this chapter. Located in Virginia means having a main office or branch office in the Commonwealth where deposits are accepted, checks are paid, and money is lent. Treasurer and Public Depositors Treasurer and public depositor means the State Treasurer, a county, city or town treasurer or director of finance or similar officer and the custodian of any other public deposits secured pursuant to this chapter.

8. 6 Public Depositors Accounts established by Commonwealth of Virginia governmental entities StateCourts CitiesTowns CountiesOther Political Subdivisions Accounts established by component units of the above AgenciesDepartments AuthoritiesFunds BoardsInstitutions CommissionsOfficers CommitteesSchools (does not include activity fees)

9. 7 Participants Defined Treasury Board The Treasury Board of the Commonwealth created by Section 2.2- 2415 of the Code of Virginia consists of the State Treasurer, the State Comptroller, the State Tax Commissioner, and four citizen members appointed by the Governor. Escrow Agent An escrow agent is selected by a qualified public depository for the purpose of holding collateral pledged to the Treasury Board under SPDA and must meet the selection criteria outlined in Section 140 of the SPDA regulations.

10. 8 Program Overview

11. 9 How Does SPDA Work? Creates a single body of law to secure Virginia public deposits. Requires qualified public depositories to secure public deposits by pledging collateral to be held in escrow for the Virginia Treasury Board. Creates a pooled collateral method to secure public deposits among qualified public depositories: mutuality of responsibility among depositories cross guarantee among depositories 50% minimum collateral requirement Provides Treasury Board a perfected security interest in pledged collateral. Empowers Treasury Board to make and enforce regulations to administer SPDA. In the event of a default, assesses each qualified public depository its proportionate share of the loss of any uncollateralized and uninsured public deposit held by the defaulting depository based on the ratio that each depositorys average public deposits bear to the average total of all public deposits for the preceding twelve months.

12. 10 Public Deposit Security Agreement n Execution required before public depository can accept or retain any public deposit. n Tri-party agreement. n Perfected security interest to the collateral by the Treasury Board. TREASURY BOARD QUALIFIED PUBLIC DEPOSITORY ESCROW AGENT

13. 11 Treasury Board Duties, Powers and Responsibilities n Enforce regulations n Fix terms and conditions under which public deposits may be held n Determine securities that are eligible to be held as collateral n Ensure that all Code of Virginia and SPDA Regulations requirements are met by each qualified depository n Establish escrow agent criteria n In case of default or insolvency, take action as deemed advisable in accordance with program requirements n Report to public depositors any non-compliance with the Code or Regulations by qualified depositories n Monitor the financial condition of all public depositories and require collateral adjustments as warranted

14. 12 Reporting Treasury Board Summary of Depository Status Report Monthly and Quarterly Statistics Monthly Qualified Depository Listing Escrow Agent Monthly securities report Confirmations of deposits, substitutions and collateral withdrawals Qualified Public Depository Monthly Depository Report List of Public Depositors Quarterly Depositor Notice Public Depositor

15. 13 SECURITY FOR PUBLIC DEPOSITS SUMMARY OF DEPOSITORY STATUS FOR THE MONTH ENDED NOVEMBER 2008 UNDERCOLLATERALIZEDSTATUS: DEPOSITORIES: Bank of EssexFirst time undercollateralized in a Tappahannock, VAtwelve-month period. Additional collateral pledged on December 12, 2008. NEW QUALIFIED DEPOSITORIES: None MERGED QUALIFIED DEPOSITORIES: Bay Community BankMerged into Union Bank and TrustBowling Green, VA DEPOSITORIES WITH NAME CHANGES: None

16. 14 Summary of Qualified Depositories As of November 30, 2008 Bank NameSPDA contact location Access National BankReston, VA Alliance BankChantilly,VA American National Bank and Trust CompanyDanville,VA Bank of AmericaDallas, TX Bank of BotetourtBuchanan, VA Bank of Charlotte CountyPhenix, VA Bank of Clarke CountyBerryville, VA Bank of EssexTappahannock, VA Bank of FincastleFincastle, VA Bank of FloydFloyd, VA Bank of GeorgetownWashington, DC

17. 15 Statutes Related to SPDA and Public Officials

18. 16 Statutes Requiring Security for Public Deposits n Section 58.1-3158. Duties of treasurers -No treasurer shall permit any public deposit to be deposited with any depository unless it is a qualified public depository as defined in Section 2.2-4401. All such deposits shall be secured pursuant to the Virginia Security for Public Deposits Act (Section 2.2-4400 et seq.) n Section 58.1-3177.B Duties of the clerk; deposit of funds; investment of funds; failure to pay out. -B.All moneys received by the clerk shall be deposited intact as soon as practical and secured in accordance with the Virginia Security for Public Deposits Act (Section 2.2-4400 et seq.)

19. 17 Statutes Requiring Security for Public Deposits n Section 2.2-4407. Deposit of public funds in qualified public depository mandatory. No public deposit that is required to be secured pursuant to this chapter shall be made except in a qualified public depository. n Section 2.2-4408. Authority to deposit public funds. A. All treasurers and public depositors are hereby authorized to deposit funds under their control in qualified public depositories securing public deposits pursuant to this chapter. B. Local officials handling public funds in the Commonwealth may not require from a depository institution any pledge of collateral for their deposits in such institution which is in excess of the requirements of this chapter.

20. 18 Statutes Requiring Security for Public Deposits n Section 2.2-4410. Liability of treasurers or public depositors. -When deposits are made in accordance with this chapter no treasurer or public depositor shall be liable for any loss thereof resulting from the failure or default of any depository in the absence of negligence, malfeasance, misfeasance, or nonfeasance on his part or on the part of his assistants or employees.

21. 19 Responsibility of Public Officials n To ensure public deposits are deposited in a qualified public depository as defined in Section 2.2-4401 of the Code of Virginia. n Ensure that localitys funds remain with a qualified depository during mergers, acquisitions and name changes. n To ensure localitys depositories know that localitys demand deposit accounts and non-negotiable certificates of deposit are considered public deposits under the SPDA and are collateralized accordingly. n To ensure localitys depositories comply with the SPDA by reviewing the Summary of Depository Status Report (available at www.trs.virginia.gov in the Operations Division). www.trs.virginia.gov n To review quarterly public depositor report (bank statements) and notify the State Treasurers office of any discrepancies between the statement and the depositors records. n To notify localitys depository of large deposits pending so the depository can have sufficient collateral pledged to cover the deposit.

22. 20 Recent Developments

23. 21 Need for Change n Instability in financial markets n Concentration of Virginia public deposits n Only 50% collateral requirements for most banks

24. 22 Treasury Board Action n Received public comments (Oct-Dec 2008). n Increased collateral that banks holding public deposits must pledge (effective February 2009). –public deposits (in total for each bank) under $50 million collateralized at 50% –public deposits between $50 million and $250 million collateralized at 75% –public deposits over $250 million collateralized at 100%

25. 23 Treasury Board Action n Conduct a study of the liquidity and marketability of the securities currently accepted as collateral by March 31, 2009. n Support legislation giving Treasury Board the power to establish guidelines to permit banks that are required to, or elect to, fully collateralize their public deposits to opt out of the collateral pool (HB 1761).

26. 24 Statistics and Contacts

27. 25 Statistics as of September 30, 2008 Total Public Deposits all Public Depositories $4,714,112,100 Total Market Value Collateral all Public Depositories $3,321,353,279 Total Required Collateral all Public Depositories $2,479,949,864 Percentage of Public Deposits held by the 5 largest Public Depositories 68% Total Qualified Public Depositories 119

28. 26 SPDA Treasury Contacts (As of January 2009) Thelma Ingle Manager, Agency Accounting(804) 371-6009 Thelma.Ingle@trs.virginia.gov Kristin Reiter Director, Operations Division(804) 225-3240 Kristin.Reiter@trs.virginia.gov E-mail:SPDAMail@trs.virginia.govSPDAMail@trs.virginia.gov SPDA information on Treasurys website: www.trs.virginia.gov/operations/operations.asp