As noted in the FDIC’s latest Frequently Asked Questions on the TLGP, the FDIC will fully guarantee public funds deposits in NOW accounts so long as the interest rate does not exceed 0.5 percent and the institution has committed to maintain the interest rate at or below 0.5 percent (assuming the institution has not opted out of the Transaction Account Guarantee). The amount of collateral required for such guaranteed public funds, if any, is imposed by state law and not by the FDIC’s regulation. As noted by the FDIC, the amount of collateral will depend upon the wording and meaning of each state’s laws.
As noted below, the Georgia statutes are not 100% clear, but we believe that Georgia depository institutions should not be required to provide collateral for public funds that are fully guaranteed by the FDIC under the Transaction Account Guarantee portion of the TLGP. We believe the statutes should be read as treating the FDIC guarantee in the same manner as FDIC insurance. Although the FDIC has generally been careful to use the term “guarantee” rather than “insurance” for the Transaction Account Guarantee portion of TLGP, in their December 4th press release, the FDIC stated that such funds will be “fully insured by the FDIC.”
We also understand that the going rate for public funds in Georgia is currently in excess of the 50 basis points permitted for NOW accounts to be treated as noninterest-bearing transactional accounts under TLGP. However, given moving rates and the possibility of fully guaranteed FDIC funds, we could see enterprising bankers using this provision to their advantage.
Moreover, all banks with public fund deposits should re-examine their calculations for the amount of securities that must be pledged to confirm that they have taken into effect the increase in FDIC deposit insurance from $100,000 to $250,000.
In Georgia, the requirements to provide collateral for public funds are found in Georgia Code Section 50-17-59 (for state funds) and 45-8-12 (for other public funds).
Section 50-17-59(c) provides (emphasis added):
The director shall also accept the guarantee or insurance of accounts of the Federal Deposit Insurance Corporation to secure state funds on deposit in state depositories, to the extent authorized by federal law governing the Federal Deposit Insurance Corporation.
Section 45-8-12(b) provides (emphasis added):
The collecting officer or officer holding public funds shall accept the guarantee or insurance of accounts of the Federal Deposit Insurance Corporation and the guarantee or insurance of accounts of the Federal Savings and Loan Insurance Corporation to secure public funds on deposit in depositories to the extent authorized by federal law governing the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation.
Section 45-8-12(c), however, provides (emphasis added):
A depository may secure deposits made with it partly by surety bond, partly by deposit of any one or more of the obligations referred to in subsection (a) of this Code section, partly by the guarantee or insurance referred to in subsection (b) of this Code section, or by any combination of these methods. The aggregate of the face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent of the public funds being secured after the deduction of the amount of deposit insurance.
We are working with the Georgia Department of Banking and Finance to confirm that (1) the FDIC guarantee provided by the TLGP should be treated in the same manner as FDIC insurance generally and (2) no securities should need to be pledged under Georgia law so long as the account is fully guaranteed by the FDIC.