DAR File No. 27689

Money Management Council, Administration

R628-11

Maximum Amount of Public Funds Allowed to be Held by any Qualified Depository

NOTICE OF PROPOSED RULE

DAR File No.: 27689
Filed: 02/01/2005, 05:00
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

The reason for these changes is to tighten up the capital requirements for banks to hold public funds and to tighten up the formula for calculating the maximum uninsured public funds a qualified depository may hold. The Council feels that this may allow them to better pinpoint problems as the figures may be more sensitive to issues with financial institutions.

Summary of the rule or change:

The language has been updated and has incorporated a definition of "Tier 1 capital" removing the definition of "adjusted capital." Also, the schedule of ratios to public funds allotment has been adjusted down for institutions that do not receive an unqualified opinion from an outside auditor or don't have an outside audit, to one times capital if the institution is in the highest ratio level; for institutions that do have an outside audit and an unqualified opinion, to one and a half times capital. Other minor housekeeping language changes have been made to update the rule.

State statutory or constitutional authorization for this rule:

Section 51-7-18.1

Anticipated cost or savings to:

the state budget:

None--This rule applies to financial institutions and not state entities.

local governments:

None--This rule applies to financial institutions and not local governments.

other persons:

Audit costs could be incurred if a financial institution does not have one and chooses to do so. Only a small portion of institutions in Utah do not have an outside audit. Those costs are based on the size of the institution and range from $3,500 for a small institution, to $97,500 for a larger one. Also the cost of purchasing collateral could be incurred if an institution needs to collateralize and does not have enough securities to do so.

Compliance costs for affected persons:

If a financial institution has not had an audit and chooses to get one to have a higher allotment of uninsured public funds, they will have to pay those costs.

Comments by the department head on the fiscal impact the rule may have on businesses:

The amended rule reduces the amount of uninsured public funds which may be held as deposits in Utah financial institutions. While no Utah financial institution is impacted by the amendments as of the filing date, an institution impacted in the future would be limited in the amount of uninsured public deposits it could accept and would have to obtain deposits from other, non-public sources at prevailing interest rates. An institution found to hold excess uninsured public deposits would be required to pledge collateral to secure the excess deposits until deposits could be reduced. Institutions required to pledge collateral may incur additional costs due to acquisition and management of acceptable collateral.

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Direct questions regarding this rule to:

Ann Pedroza at the above address, by phone at 801-538-1883, by FAX at 801-538-1465, or by Internet E-mail at apedroza@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

03/17/2005

This rule may become effective on:

03/18/2005

Authorized by:

Larry Richardson, Chair

RULE TEXT

R628. Money Management Council, Administration.

R628-11. Maximum Amount of Uninsured Public Funds Allowed to Be Held by Any Qualified Depository.

R628-11-1. Authority.

This rule is issued pursuant to Section 51-7-18.1.

R628-11-2. Scope.

This rule applies to all qualified depository institutions at which uninsured public funds may be held.

R628-11-3. Purpose.

This rule [protects against the loss of public funds by ]establish[ing]es a formula for determining the maximum amount of uninsured public funds that can safely be held by any qualified depository. The rule defines capital for each class of qualified depository institution, establishes a formula for calculating the maximum amount of uninsured public funds which can be held at a qualified depository institution, establishes a schedule for reduction of uninsured public deposits based on risk to public treasurers and establishes the frequency of public funds allotment adjustments.

R628-11-4. Definitions.

For the purposes of this rule:

A. "[Adjusted]Tier one capital" means:[ capital less 40% of nonperforming assets.]

[ B. "Capital" means:

] (1) For a federally insured commercial bank, thrift institution, industrial loan corporation or a savings and loan association, the same as defined in the Federal Deposit Insurance Act in CFR Chapter III Section325.2 or the Office of Thrift Supervision in CFR Chapter V Section565.2 [the sum of capital stock, preferred stock, permanent, reserve or guaranty stock, surplus, paid-in surplus, undivided profits, retained earnings, net undistributed income, subordinated notes, allowance for loan losses, specific reserves and valuation allowances, reserves for contingencies and other capital reserves];

(2) For a federally insured credit union, the sum of [unappropriated retained]undivided earnings, [regulatory/statutory]regular reserves, appropriations of undivided earnings referred to as[all] "other reserves", and [allowance for loan losses]net income not already included in undivided earnings.

C. "Deposits" means: balances due to persons having an account at the qualified depository institution whether in the form of a transaction account, savings account, share account, or certificate of deposit and repurchase agreements other than qualifying repurchase agreements.

D. "Out of State" means: in reference to a depository institution or depository institution holding company, an institution or company whose home state is not Utah.

E. "Maximum amount" means: the amount of deposits in excess of the federal deposit insurance limit.

[ F. "Nonperforming assets" means:

(1) For a federally insured commercial bank, thrift institution, industrial loan corporation or a savings and loan association, the aggregate of all loans and lease financing receivables past due 90 days or more and still accruing, all loans and lease financing receivables on nonaccrual status and 50% of Other Real Estate;

(2) For a federally insured credit union, all loans delinquent two months or more.

] [G]F. "Qualified depository" means: a Utah depository institution as defined in Subsection 7-1-103(36) or a out of state depository institution as defined in Subsection 7-1-103(25) which may conduct business in this state under Section 7-1-702, whose deposits are insured by an agency of the Federal Government and which has been certified by the Commissioner of Financial Institutions as having met the requirements to receive uninsured public funds.

[H]G. "Transaction account" means: a deposit, account, or other contractual arrangement in which a depositor, account holder, or other customer is permitted, directly or indirectly, to make withdrawals by check or other negotiable instrument, a payment order of withdrawal, a telephone transfer or other electronic [means]transfer or by any other means or device to make payments or transfer to third persons. This term includes demand deposits, NOW accounts, savings deposits subject to automatic transfers, and share draft accounts.

I. "Utah depository institution" means: a depository institution which is organized under the laws of, and whose home office is located in, this state or which is organized under the laws of the United States and whose home office is located in this state.

R628-11-5. General Rule.

A. Maximum Insured Public Funds

Any qualified depository may accept, receive, and hold deposits of public funds without limitation, if the total amount of deposits from each public treasurer does not exceed the applicable federal depository insurance limit.

B. Maximum Deposits in Excess of the Federal Insurance Limits For Qualified Utah Depository Institutions

(1) For all qualified Utah depository institutions which [do not ]receive a[n] [un]qualified opinion issued by an independent certified public accountant upon completion of an annual audit performed in accordance with generally accepted auditing standards, and for all qualified Utah depository institutions which do not have an audit conducted by an independent certified public accountant, the maximum amount of uninsured public funds which may be held shall be according to the following schedule:

TABLE 1

     Ratio of [Adjusted]Tier one Capital

     to Total Assets             Uninsured Public Funds Allotment



     5.0% or more                [Two]One      X    Capital

     3.5% to 4.99%               [One].5      X    Capital

     Less than 3.5%              None

(2) A qualified Utah depository institution which receives an unqualified opinion issued by an independent certified public accountant upon completion of an annual audit performed in accordance with generally accepted auditing standards, may submit the audit report within 100 days of the date of the audit to the Department of Financial Institutions for review and the Commissioner of Financial Institutions [may]must authorize that the ratios of [adjusted]Tier one capital to total assets applicable to the institution submitting the audit for determining the maximum amount of uninsured public funds allowed may be according to the following schedule:

TABLE 2

     Ratio of [Adjusted]Tier one Capital

     to Total Assets             Uninsured Public Funds Allotment



     [4.]5% or more                [Two]1.5      X    Capital

     3.[0]5% to 4.[4]99%           [One].75      X    Capital

     Less than 3.[0]5%             None

C. A qualified out-of-state depository institution will be treated as a qualified Utah depository subject to all the provisions of this section in determining its uninsured public funds allotment except that the uninsured public funds allotment will be reduced by multiplying by a factor of total deposits outstanding at Utah branches of the institution divided by the total deposits at the institution. Nothing in R628-11 shall prohibit a out-of-state depository institution from qualifying as a permitted out-of-state depository in accordance with R628-10.

R628-11-6. Responsibility to Monitor Balances.

Deposits in qualified depositories which are limited by R628-11-5(B) [and R628-11-5(C) ]to the amount of federal deposit insurance must be monitored on a daily basis to assure that [the total of all time deposits and transaction accounts is not allowed to exceed]no public treasurer has deposit balances in excess of the federal insurance limit. The public treasurer making deposits and the qualified depository accepting deposits shall both be responsible to assure that the depositor's combined balance of all accounts stays within the federal insurance limit.

R628-11-7. Collateralization of Excess Uninsured Public Funds.

Pursuant to Section 51-7-18.1(5), the Money Management Council may require a qualified depository to pledge collateral security for deposits of uninsured public funds which exceed the uninsured public funds allotment established by this rule. Any pledging of collateral security required by the Money Management Council shall be in accordance with the provisions of the Money Management Act and the rules of the Money Management Council.

R628-11-8. Frequency of Adjustment to the Uninsured Public Funds Allotment.

A. The uninsured public funds allotment for each qualified depository shall be established quarterly by the Council, based on the reports of condition filed with the Commissioner as of the close of the preceding quarter. The uninsured public funds allotments shall be established in accordance with the following:

TABLE 3

     Report of Condition       Effective Date

     As Of:                    of Allotment



     December    31            April     1

     March       31            July      1

     June        30            October   1

     September   30            January   1

B. The Money Management Council may make interim adjustments in a qualified depository's uninsured public funds allotment if material changes in a qualified depository's financial condition have occurred or if there is a formal enforcement action by the federal or state regulator.

R628-11-9. Right to Petition the Council for Review.

A qualified depository may petition the Money Management Council in writing for review and reconsideration of its allotment within [15]10 business days of written notice of the establishment or modification of its uninsured public funds allotment. The Money Management Council shall rule on any petition for review and reconsideration at its next regularly scheduled meeting.

R628-11-10. Notification of Public Treasurers.

Within [15]10 business days of the close of each calendar quarter, the Money Management Council shall cause a list of qualified depository institutions and the currently effective uninsured public funds allotment to be prepared and mailed to all public treasurers.

KEY: financial institutions, banking law

1990

Notice of Continuation October 13, 2000

51-7-18.1(2)

ADDITIONAL INFORMATION

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For questions regarding the content or application of this rule, please contact Ann Pedroza at the above address, by phone at 801-538-1883, by FAX at 801-538-1465, or by Internet E-mail at apedroza@utah.gov

For questions about the rulemaking process, please contact the Division of Administrative Rules (801-538-3764). Please Note: The Division of Administrative Rules is NOT able to answer questions about the content or application of these administrative rules.