Date of Adoption: October 5, 1999.

Purpose: To amend and update the procedures to be followed by financial institutions who hold public funds in Washington state in accordance with the Public Deposit Protection Act.

Citation of Existing Rules Affected by this Order: Amending WAC 389-12-020 through 389-12-230.

Statutory Authority for Adoption: Chapter 39.58 RCW.

Other Authority: RCW 39.58.040.

Adopted under notice filed as WSR 99-16-034 on July 28, 1999.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 13, Repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 13, Repealed 0.

Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 13, Repealed 0. Effective Date of Rule: Thirty-one days after filing.

October 5, 1999

Gretchen D. Gale

Legal Counsel

OTS-3287.2

AMENDATORY SECTION(Amending Order 86-I, Resolution No. 86-003, filed 6/19/86)

WAC 389-12-020
Definitions.

Unless the context requires otherwise:

(1) ((Qualified public depositary.  "Qualified)) "Public depositary" means a financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and ((which)) whose charter has been approved by the commission to hold public deposits.

(2) ((Financial institution.  A)) "Financial institution" means any of the following which are located in this state and are lawfully engaged in business:

(a) Bank depositaries--Any branch of a bank engaged in the banking business in this state in accordance with RCW 30.04.300, and any state bank or trust company or national banking association.

(b) Thrift depositaries--Any state chartered mutual savings bank or stock savings bank, any state or federally chartered savings and loan association (including federally chartered savings bank).

(3) ((Investment deposits.  The term)) "Investment deposit" shall mean time deposits, savings deposits, and money market deposit accounts of public funds available for investment.  Savings ((deposit[s])) deposits shall mean an interest bearing deposit of public funds that is subject to withdrawal and that is not payable on a specified date or at the expiration of a specified time after the date of deposit.  Time deposit shall mean a single maturity or multiple maturity interest bearing investment deposit of public funds, which is either evidenced by a certificate of deposit issued by a ((qualified)) public depositary, or reflected in a book-entry system of such depositary approved by federal regulatory authorities, state supervisor of banking and/or state supervisor of savings and loan associations, and which is payable to a treasurer on a date certain.  Such certificate shall not be negotiable, nor an interest in an investment deposit transferable, except between treasurers and/or ((qualified)) public depositaries.  Money market deposit account shall mean an account established with a ((qualified)) public depositary in accordance with Public Law No. 97-320, the Garn-St. Germain Depository Institutions Act of 1982.

(4) ((Commission report.  The)) "Commission report" shall mean a formal accounting rendered by ((qualified)) public depositaries to the commission, which details pertinent information of each depositary as of the close of the last business day of each calendar quarter; the commission report is due in the office of the commission not later than thirty days after the end of ((the)) each calendar quarter. In addition, each public depositary shall submit to the commission a nonquarter monthly reporting of public funds. This report shall be due eight working days after the end of each nonquarter month.

(5) ((Date of loss.  The term)) "Date of loss" shall mean the date on which a loss shall be deemed to have occurred within the meaning of the act, and shall be the first to happen of the following:

(a) The date of the taking of possession of the financial institution by a supervisory agency; or

(b) The date of the appointment of the receiver or conservator for a financial institution; or

(c) The date of the commencement of a voluntary liquidation proceeding for a financial institution; or

(d) The date of an order issued by a regulatory authority or a court of competent jurisdiction restraining a financial institution from making payments on deposit liabilities; or

(e) The date on which the commission declares that a financial institution no longer has the ability to repay public deposits in full.

(6) ((Depositary pledge agreement.)) "Depositary pledge agreement" means a written tri-party agreement, on a form supplied by the commission, wherein a financial institution, in compliance with the act and as a condition precedent to becoming or continuing to be a ((qualified)) public depositary, transfers and delivers securities which are eligible collateral to a corporate fiduciary under the exercise of its trust powers, to ((a)) the federal reserve bank ((or any branch thereof or)) of San Francisco, the federal home loan bank ((or any branch thereof)) of Seattle, the trust department of the public depositary, or any other institution as approved by the commission, which agrees to safekeep such securities for the primary benefit of the commission under the terms and conditions of the agreement and for the purposes set forth by the act and the regulations of the commission.  Such agreement shall be executed on behalf of the commission by the chairman, who shall be the state treasurer. Upon completion, the agreement shall be approved by the board of directors or loan committee of the financial institutions. The agreement must be continuously, from the time of its execution, an official record of the bank. Copies of the meeting minutes which reflect this are to be provided to the commission.

(7) ((Segregation of collateral.)) "Segregation of collateral" means the transfer and delivery of eligible securities by a ((qualified)) public depositary pursuant to a depositary pledge agreement (RCW 39.58.050).  A depositary wishing to reduce the amount of securities pledged as collateral must submit a written request to the commission.  The trustee holding the collateral shall not allow a reduction of securities without the prior written approval of the commission.  When a ((qualified)) public depositary pledges eligible securities whose payments include a periodic principal reduction, the ((depositary)) trustee shall ((promptly)) advise the commission, on no less than a monthly basis, of the ((dates and)) amounts of such principal payments as well as the new total value which result from the principal payments.

(8) ((Net worth.)) "Net worth" of a ((qualified)) public depositary means:

(a) For a bank depositary, the aggregate of capital, surplus, undivided profits and all capital notes and debentures which are subordinate to the interest of depositors;

(b) For a thrift depositary, the aggregate of such capital stock, guaranty fund, general reserves, surplus, undivided profits, and all capital notes and debentures which are subordinate to the interest of depositors, as are eligible for inclusion in otherwise determining the net worth of a mutual savings bank, stock savings bank, or savings and loan association, excluding appraised equity capital, income capital certificates, net worth certificates(([,])), and deferred losses on loans sold;

Net worth for both bank and thrift depositaries headquartered outside Washington state may be adjusted by the commission to reflect the depositaries' proportional net worth position in Washington state.

(9) ((Corporate fiduciary.)) "Corporate fiduciary" for the purposes of these rules means a financial institution as defined herein which is possessed of statutorily granted trust authority: Provided, That for the purposes of this definition such financial institution need not be located or doing business in the state of Washington.

(10) ((Banking institution.  "Banking institution" for the purposes of these rules means an institution organized under the laws of the United States, any state of the United States, the District of Columbia, any territory of the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands, except an institution the accounts of which are insured by the federal savings and loan insurance corporation or an institution chartered by the federal home loan bank board, which (1) accepts deposits that the depositor has a legal right to withdraw on demand, and (2) engages in the business of making commercial loans.

(11) Out-of-state bank.)) "Out-of-state bank" for the purposes of these rules means a ((banking)) financial institution ((as defined in WAC 389-12-020(10))) which has its principal place of business outside the state of Washington.

(((12) Alien bank.)) (11) "Alien bank" for the purposes of these rules means a ((bank)) financial institution organized under the laws of a foreign country and having its principal place of business in that country, the majority of the beneficial ownership and control of which is vested in citizens of countries other than the United States of America.

[Statutory Authority: RCW 39.58.040.  86-14-005 (Order 86-I, Resolution No. 86-003), § 389-12-020, filed 6/19/86; 84-21-036 (Order 84-II, Resolution No. 84-004), § 389-12-020, filed 10/11/84; 84-03-037 (Order 84-01), § 389-12-020, filed 1/13/84; 78-12-075 (Order 78-XIV, Resolution No. 78-XIV), § 389-12-020, filed 12/5/78; Order 77-XIII, § 389-12-020, filed 9/27/77; Order II, § 389-12-020, filed 6/13/73; Order 1, § 389-12-020, filed 2/9/70.]

Any financial institution in the state of Washington eligible under the act, in order to become a ((qualified)) public depositary, must be approved by the commission and segregate collateral in the manner as set forth in these rules prior to the receipt of public deposits.  Until such time as ((qualified)) public depositaries have submitted four consecutive reports to the commission as required by RCW 39.58.100, they shall at all times be required to pledge and segregate eligible securities, valued at market value, in an amount equal to not less than 10% of all public funds on deposit in said depositary.  During the interim period in which a financial institution is required to file four consecutive reports, each such institution shall report to the commission on each commission report date ((on forms)) in a format supplied by the commission.

[Statutory Authority: RCW 39.58.040.  84-21-036 (Order 84-II, Resolution No. 84-004), § 389-12-030, filed 10/11/84; 84-03-037 (Order 84-01), § 389-12-030, filed 1/13/84; Order 77-XIII, § 389-12-030, filed 9/27/77; Order II, § 389-12-030, filed 6/13/73; Order 1, § 389-12-030, filed 2/9/70.]

On each commission report date each public depositary shall ((recompute)) recalculate its maximum liability ((on a form)) in a format to be supplied by the commission.  Such report shall, in addition to other information, show the current amount of deposits of Washington state and its political subdivisions for the most recent commission report date, such deposits as shown on the four most recent reports (i.e., current report and three immediately preceding reports), the average of these deposits for the four report periods, and the depositary's maximum liability as defined in RCW 39.58.010(6).

The quarterly report to the commission shall be received in the office of the commission not later than thirty days following each calendar quarter end, and shall have attached a completed copy of the balance sheet and deposit liabilities portion of the depositary's most recent consolidated report of condition or ((most recent report to the Federal Home Loan Bank, whichever is applicable)) consolidated statement of condition as reported to the depositary's primary regulator.

At the end of each calendar quarter, the commission shall provide ((appropriate reporting forms to)) each ((qualified)) public depositary ((and)) the amount constituting thirty percent of total public funds on deposit in Washington state for the preceding quarter.  Depositaries will use this figure for the current report period and to monitor their total public funds on deposit for the ensuing quarter, unless notified of a revised figure by the commission.

Upon written request from a public depositary the commission may, for good cause shown, extend the due date for commission reports for a period not to exceed ten days.

If the maximum liability has increased from the previous report or if aggregate public deposits exceed the limitations prescribed in section 19, chapter 177, Laws of 1984, the depositary shall immediately increase its collateral and the commission shall be so notified.

Each public depositary shall provide to the commission a copy of any changes, amendments, or alterations to the depositary's financial report as submitted to appropriate regulatory authority which relate to (a) deposits of states and political subdivision, and/or (b) net worth.

A monthly report of public funds shall, in a format supplied by the commission, be submitted by each public depositary to the commission no later than eight working days following the end of each month. If applicable, adjustments to the depositaries' last reported net worth and/or additional collateral being pledged shall be listed on the monthly report. The monthly report shall be submitted to the commission every month, except for those months in which the quarterly report must be submitted to the commission.

[Statutory Authority: RCW 39.58.040.  84-21-036 (Order 84-II, Resolution No. 84-004), § 389-12-040, filed 10/11/84; 84-03-037 (Order 84-01), § 389-12-040, filed 1/13/84; Order 77-XIII, § 389-12-040, filed 9/27/77; Order II, § 389-12-040, filed 6/13/73; Order 1, § 389-12-040, filed 2/9/70.]

Securities pledged as collateral by a ((qualified)) public depositary shall be reported at market value.

Market value shall be computed as of the date of segregation or the last preceding commission report date, whichever is later.  When the commission report is submitted, each depositary shall provide ((on)) in a ((form)) format supplied by the commission a current listing of those securities pledged and their then current market and par value.

[Statutory Authority: RCW 39.58.040.  84-21-036 (Order 84-II, Resolution No. 84-004), § 389-12-050, filed 10/11/84; 84-03-037 (Order 84-01), § 389-12-050, filed 1/13/84; Order 77-XIII, § 389-12-050, filed 9/27/77; Order II, § 389-12-050, filed 6/13/73; Order 1, § 389-12-050, filed 2/9/70.]

Except for the exchange or substitution of securities having a like or greater market value, the trustee shall not permit the withdrawal of any security without advance written approval of the commission.

The trustee, under a depositary pledge agreement, shall inform the commission whenever assets are delivered to or by the trustee by mailing to the commission, within twenty-four hours following such deposit or withdrawal, a copy of the receipt signed by the party that accepted delivery of such assets.

No costs, fees and expenses incidental to the functioning of the pledge agreement shall be a charge against the commission or its interest in the securities pledged.

Each ((qualified)) public depositary shall at all times maintain eligible collateral segregated and pledged with its trustee having a value at least equal to its maximum liability as defined in the act and under these rules and regulations.  Compliance with the foregoing requirement shall be the depositary's responsibility regardless of the frequency and form of reports required by the commission.

[Order 77-XIII, § 389-12-060, filed 9/27/77; Order II, § 389-12-060, filed 6/13/73; Order 1, § 389-12-060, filed 2/9/70.]

Whenever the public funds on deposit in a ((qualified)) public depositary exceed the limits set forth in section 19, chapter 177, Laws of 1984, such depositary shall immediately:

(1) Notify the commission; and

(2) Provide additional collateral, if necessary, to provide one hundred percent collateralization of such excess deposits.

When a depositary's net worth position is reduced, such depositary shall determine if any public treasurer's funds on deposit exceed the revised net worth.  If any such excess deposits exist, the depositary shall immediately notify the commission and provide the commission with a detailed accounting of deposits.  The depositary shall also advise the commission of its intent to:

(1) Provide one hundred percent collateralization of the excess deposits; or

(2) Allow the treasurer to withdraw such deposits in accordance with section 18, chapter 177, Laws of 1984.

[Statutory Authority: RCW 39.58.040.  84-21-036 (Order 84-II, Resolution No. 84-004), § 389-12-065, filed 10/11/84.]

Notwithstanding any other provisions of chapter 39.58 RCW and chapter 389-12 WAC, a ((qualified)) public depositary must maintain a specified ratio of net worth to assets of not less than three percent.  If such ratio for a depositary shall fall below three percent, the depositary shall pledge securities as collateral, valued at current market value, in a total amount at least equal to one hundred percent of its current public deposits: Provided, That the commission may, at any time, in its discretion, require a depositary to pledge additional collateral after consultation with appropriate regulatory authorities.

The collateral pledged under this section shall not be less than the maximum liability as required in RCW 39.58.050(1), but may include collateral required by RCW 39.58.130, 39.58.135, and WAC 389-12-065.

[Statutory Authority: RCW 39.58.040.  86-14-005 (Order 86-I, Resolution No. 86-003), § 389-12-071, filed 6/19/86.]

Whenever a public depositary must pledge securities as collateral in accordance with RCW 39.58.130, 39.58.135, WAC 389-12-065, and 389-12-071, the depositary must monitor its public funds on deposit on a daily basis and maintain securities, valued at current market value, accordingly.

[Statutory Authority: RCW 39.58.040.  86-14-005 (Order 86-I, Resolution No. 86-003), § 389-12-075, filed 6/19/86.]

In determining the maximum deposit limitation of any financial institution, a treasurer, unless advised to the contrary by the commission, may assume that each public depositary's net worth has remained unchanged from that stated in the most recently rendered commission report.

[Statutory Authority: RCW 39.58.040.  84-21-036 (Order 84-II, Resolution No. 84-004), § 389-12-080, filed 10/11/84; 84-03-037 (Order 84-01), § 389-12-080, filed 1/13/84; Order 77-XIII, § 389-12-080, filed 9/27/77; Order 1, § 389-12-080, filed 2/9/70.]

A treasurer may, with the approval of the commission, establish a demand deposit account with an out-of-state bank or an alien bank.  Prior to establishing such account, a treasurer shall submit, in writing, for review by the commission, the following information: (1) Detailed information setting forth the justification for such account, projected cash flows, and other benefits which will accrue to the public entity through the establishment of such account; (2) period of time such account will be in use; (3) reasons such account cannot be established with a ((qualified)) public depositary; (4) name and location of ((banking)) financial institution or alien bank and name and telephone number of contact person at ((banking)) financial institution or alien bank; (5) extent of deposit insurance provided by ((banking)) financial institution or alien bank; (6) most recent fiscal year end and quarterly financial report, if any, provided to regulatory agency and/or shareholders by ((banking)) financial institution or alien bank; (7) proposed method of ensuring safety of deposits if not fully covered by deposit insurance, and (8) such other information as the commission reasonably may require.

The account shall not be established until it shall have been authorized by a resolution of the commission or action authorized by the chair, setting forth the terms and conditions for such account.  A copy of such resolution will be forwarded to the public entity((,)) and the state auditor((, and the appropriate committee of the legislature)).

Accounts authorized under this section are not considered to be protected against loss by the Public Deposit Protection Act.

[Statutory Authority: RCW 39.58.040.  86-14-005 (Order 86-I, Resolution No. 86-003), § 389-12-140, filed 6/19/86.]

(1) ((Public records.)) "Public record" includes any writing containing information relating to the conduct of governmental or proprietary function prepared, owned, used or retained by any state or local agency regardless of physical form or characteristics.

(2) ((Writing.)) "Writing" means handwriting, typewriting, printing, photostating, photographing, and every other means of recording any form of communication or representation, including letters, words, pictures, sounds, or symbols, or combination thereof, and all paper, maps, magnetic or paper tapes, photographic films and prints, magnetic or punched cards, discs, drums and other documents.

(3) ((Washington public deposit commission.)) The "Washington public deposit protection commission" is the commission established by chapter 39.58 RCW.  The Washington state public deposit protection commission shall hereinafter be referred to as the "commission." Where appropriate, the term Washington public deposit protection commission also refers to the staff and employees of the commission.

[Order XII, § 389-12-210, filed 11/28/73.]

(((1) Washington public deposit protection commission.)) The Washington public deposit protection commission is a state agency empowered to perform all duties prescribed by law with respect to the collateralization of public funds.  The administrative offices of the Washington public deposit protection commission and its staff are located in the state treasurer's office in the Legislative Building, Olympia, Washington.

[Order XII, § 389-12-220, filed 11/28/73.]

The Washington public deposit protection commission is charged with the duty of protecting public funds on deposit by Washington's public treasurers in the event of a default of a ((qualified)) public depositary, and such other duties as set forth in chapter 39.58 RCW.

[Statutory Authority: RCW 39.58.040.  84-21-036 (Order 84-II, Resolution No. 84-004), § 389-12-230, filed 10/11/84; 84-03-037 (Order 84-01), § 389-12-230, filed 1/13/84; Order 77-XIII, § 389-12-230, filed 9/27/77; Order XII, § 389-12-230, filed 11/28/73.]

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