SENATE, No. 2859

STATE OF NEW JERSEY

213th LEGISLATURE

 

INTRODUCED MAY 21, 2009

 


 

Sponsored by:

Senator RAYMOND J. LESNIAK

District 20 (Union)

 

Co-Sponsored by:

Senator Cardinale

 

 

 

 

SYNOPSIS

     Concerns collateral of public depositories under "Governmental Unit Deposit Protection Act."

 

CURRENT VERSION OF TEXT

     As introduced.

  


An Act concerning the collateral of public depositories and amending P.L.1970, c.236.

 

     Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

     1.    Section 1 of P.L.1970, c.236 (C.17:9-41) is amended to read as follows:

     1.    In this act, unless the context otherwise requires:

     "Association" means any State or federally chartered savings and loan association;

     "Capital funds" means (a) in the case of a State bank or national bank or capital stock savings bank, the aggregate of the capital stock, surplus and undivided profits of the bank or savings bank; (b) in the case of a mutual savings bank, the aggregate of the capital deposits, if any, and the surplus of the savings bank; and (c) in the case of an association, the aggregate of all reserves required by any law or regulation, and the undivided profits, if any, of the association;

     "Commissioner" means the Commissioner of Banking and Insurance;

     "Defaulting depository" means a public depository as to which an event of default has occurred;

     "Eligible collateral" means:

     (a)   Obligations of any of the following:

     (1)   The United States;

     (2)   Any agency or instrumentality of the United States, including, but not limited to, the Student Loan Marketing Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Federal Housing Administration and the Small Business Administration;

     (3)   The State of New Jersey or any of its political subdivisions;

     (4)   Any other governmental unit; or

     (b)   Obligations guaranteed or insured by any of the following, to the extent of that insurance or guaranty:

     (1)   The United States;

     (2)   Any agency or instrumentality of the United States, including, but not limited to, the Student Loan Marketing Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Federal Housing Administration and the Small Business Administration;

     (3)   The State of New Jersey or any of its political subdivisions; or

     (c)   Obligations now or hereafter authorized by law as security for public deposits;

     (d)   Obligations in which the State, political subdivisions of the State, their officers, boards, commissions, departments and agencies may invest pursuant to an express authorization under any law authorizing the issuance of those obligations;

     (e)   Obligations, letters of credit, or other securities or evidence of indebtedness constituting the direct and general obligation of a federal home loan bank or federal reserve bank; or

     (f)    Any other obligations as may be approved by the commissioner by regulation or by specific approval;

     "Event of default" means issuance of an order of a supervisory authority or of a receiver restraining a public depository from making payments of deposit liabilities;

     "Governmental unit" means any county, municipality, school district or any public body corporate and politic created or established under any law of this State by or on behalf of any one or more counties or municipalities, or any board, commission, department or agency of any of the foregoing having custody of funds;

     "Maximum liability" of a public depository means, with respect to any event of default, a sum equal to 5% of the [average daily balance of collected public funds held on deposit by the depository during the six-month period ending on the last day of the month next preceding the occurrence of such event of default] amount, if any, by which the public funds on deposit, as of the date of default, exceed the amount of such public fund deposits that are: (1) insured by the Federal Deposit Insurance Corporation or by any other agency of  the United States which insures deposits made in public depositories; or (2) collateralized pursuant to section 4 of P.L.1970, c.236 (C.17:9-44); or both;

     "Net deposit liability" means the deposit liability of a defaulting depository to a governmental unit after deduction of any deposit insurance with respect thereto;

     "Obligations" means any bonds, notes, capital notes, bond anticipation notes, tax anticipation notes, temporary notes, loan bonds, mortgage related securities, or mortgages;

     "Public depository" means a State or federally chartered bank, savings bank or an association located in this State or a state or federally chartered bank, savings bank or an association located in another state with a branch office in this State, the deposits of which are insured by the Federal Deposit Insurance Corporation and which receives or holds public funds on deposit;

     "Public funds" means the funds of any governmental unit, but does not include deposits held by the State of New Jersey Cash Management Fund;

     "Valuation date" means December 31 and June 30.

(cf:  P.L.2003, c.178, s.1)

     2.    Section 4 of P.L.1970, c.236 (C.17:9-44) is amended to read as follows:

     4.    a.  Every public depository having public funds on deposit therein shall, as security for such deposits, maintain eligible collateral having a market value  at least equal to either (1) 5% of the average daily balance of collected  public funds on deposit during the 6-month period ending on the next preceding valuation date, or (2), at the election of the depository, at least equal to 5%  of the average balance of collected public funds on deposit on the first,  eighth, fifteenth and twenty-second days of each month in the 6-month period ending on the next preceding valuation date, but no public depository shall be  required to maintain any eligible collateral pursuant to this act as security for any deposit or deposits of any governmental unit to the extent that such  deposit or deposits are insured by the Federal Deposit Insurance Corporation [or the Federal Savings and Loan Insurance Corporation] or by any other agency of the United States which insures deposits made in public depositories.  In the case of any public depository which has not held public funds on deposit for all of such 6-month period, the commissioner shall prescribe the amount of eligible collateral required to be maintained. Depositories shall have the right to make substitutions of eligible collateral at any time.  The income from eligible collateral shall belong to the public depository without restriction.

     b.    No public depository shall at any time receive and hold on deposit for any period in excess of 15 days public funds of a governmental unit or governmental units which, in the aggregate, exceed 75% of the capital funds of the depository, unless such depository shall, in addition to the security required to be maintained under paragraph a. of this section, secure such excess by eligible collateral with a market value at least equal to 100% of such excess.

     c.     All collateral required to be maintained shall be deposited with the Federal Reserve Bank of New York, the Federal Reserve Bank of Philadelphia, the Federal Home Loan Bank of New York, as the case may be, or with any other banking institution located in this State or a contiguous state which is a member of the Federal Reserve System and has capital funds of not less than $25,000,000.00.  Notwithstanding the foregoing, the commissioner may authorize public depositories to hold and maintain the required collateral in such a manner as he deems consistent with the purposes of this act.

     d.    The market value of eligible collateral maintained pursuant to this section on any valuation date shall be presumed to be the market value of such collateral until the next succeeding valuation date.

     e.     Notwithstanding the provisions of subsections a. and b. of this section, a public depository may comply with the requirements of  this section by maintaining eligible collateral with a market value at least equal to 100% of the public funds it holds on deposit, in excess of the amount of those deposits insured by the Federal Deposit Insurance Corporation or by any other agency of  the United States which insures deposits made in public depositories; except that, for the purposes of this subsection, the valuation date shall be the last day of each calendar month and the depository shall be deemed to be in compliance with this subsection as to any valuation date if it has pledged at least the applicable amount of eligible collateral by no later than the 15th day of the next calendar month following the valuation date, or such later date in that month as the commissioner may prescribe by regulation.

(cf:  P.L.1973, c.98, s.2)

 

     3.    Section 5 of P.L.1970, c.236 (C.17:9-45) is amended to read as follows:

     5.    When the commissioner determines that an event of default has occurred, he shall proceed in the following manner:

     a.     Within 20 days after the occurrence of the event of default, he shall ascertain the amount of public funds on deposit in the defaulting depository as  disclosed by its records and the amount thereof covered by federal deposit insurance and certify the amounts thereof to each affected governmental unit;

     b.    Within 10 days after receipt of such certification, each such governmental unit shall furnish to the commissioner verified statements of its public deposits in such defaulting depository as disclosed by its records;

     c.     Upon receipt of such certificate and statements, he shall ascertain and fix the amount of such public funds on deposit in such defaulting depository, net after deduction of any deposit insurance;

     d.    He shall ascertain the amount derived or to be derived from the liquidation of the collateral maintained by the defaulting depository pursuant to section 4 of this act, and shall distribute such proceeds pro rata among the  governmental units affected to the extent necessary to satisfy the net deposit  liabilities to such governmental units;

     e.     If the proceeds of the sale of the collateral of a defaulting depository which is a State bank, a national bank or a savings bank are insufficient to  pay in full the net deposit liability of such depository to all affected  governmental units, he shall assess the deficiency against all other such  public depositories having public funds on deposit as of the occurrence of the event of default, subject to the provisions of subsections j. and k. of this section, in the proportion that the maximum liability of each such  other public depository bears to the aggregate of the maximum liabilities of  all such other depositories, but no such assessment shall exceed the maximum  liability of any such other depository;

     f.     If the proceeds of the sale of the collateral of a defaulting depository which is an association are insufficient to pay in full the net deposit  liability of such depository to all affected governmental units, he shall  assess the deficiency against all such other public depositories having public  funds on deposit as of the occurrence of the event of default, subject to the provisions of subsections j. and k. of this section,  in the proportion  that the maximum liability of each such other public depository bears to the  aggregate of the maximum liabilities of all such other depositories, but no  such assessment shall exceed the maximum liability of any such other  depository;

     g.     Assessments so made by the commissioner shall be payable on the fifth day following the demand therefor by the commissioner.  On default of such payment by any such other public depository, the commissioner shall take possession of and liquidate so much of the eligible collateral maintained by such depository as shall be necessary to satisfy the assessment so made.  If the proceeds of the liquidation of the eligible security are insufficient to pay such assessment in full, the commissioner may sue to recover the amount of the deficiency within the limits of the depository's maximum liability.

     h.     All sums so collected by the commissioner shall be paid by him to the governmental units having deposits in the defaulting depository in the proportion that the net deposit liability to each such governmental unit bears to the aggregate of the net deposit liabilities to all such governmental units;

     i.      No State bank, national bank or savings bank shall be liable with respect to the occurrence of an event of default of an association, and no association shall be liable with respect to the occurrence of an event of default of a State bank, a national bank or a savings bank;

     j.     In the event of a default, any public depository that has elected to maintain collateral pursuant to subsection e. of section 4 of P.L.1970, c.236 (C.17:9-44), shall not be subject to any assessment pursuant to this section so long as it is in compliance with subsection e. of section 4 of P.L.1970, c.236 (C.17:9-44) on the date of default;

     k.    In the event of a default, any public depository that has elected to maintain collateral pursuant to subsection e. of section 4 of P.L.1970, c.236 (C.17:9-44), but which is not in compliance on the date of default shall be subject to assessment, but its maximum liability for purposes of that assessment shall be calculated pursuant to subsection j. of this section.

(cf:  P.L.1970, c.236, s.5)

 

     4.    This act shall take effect immediately.


STATEMENT

 

     This bill revises and updates the collateral requirements for certain public depositories – the financial institutions which may accept the deposits of public funds – under the “Governmental Unit Deposit Protection Act” or “GUDPA,” P.L.1970, c.236 (C.17:9-41 et seq.).

     It allows a public depository which receives or holds public funds and which meets its collateral requirements under GUDPA by pledging collateral equal to at least 100% of its public deposits, net of any federally insured deposits, to avoid any contingent liability for public deposit losses by another public depository bank.  

     It also limits the maximum liability of a public depository in the event of a default, to a sum equal to 5% of the amount, if any, by which the public funds on deposit, as of the date of default, exceed the amount of the public fund deposits that are: (1) insured by the Federal Deposit Insurance Corporation or by any other agency of  the United States which insures deposits made in public depositories; or (2) collateralized pursuant to GUDPA; or both.