Public Funds Collateralization Program Overview

ORS Chapter 295 governs the collateralization of Oregon public funds and provides the statutory requirements for the Public Funds Collateralization Program. Bank depositories are required to pledge collateral against any public funds deposits in excess of deposit insurance amounts. This provides additional protection for public funds in the event of a bank loss. ORS 295 sets the specific value of the collateral, as well as the types of collateral that are acceptable. ORS 295 creates a shared liability structure for participating bank depositories, better protecting public funds though still not guaranteeing that all funds are 100% protected.

Depository Banks
The Public Funds Collateralization Program (PFCP) is an application created by the Office of the State Treasurer (OST) to facilitate bank depository, custodian and public official compliance with ORS 295.

Banks are required to report quarterly to Treasury, providing quarter-end public funds balances in excess of the FDIC limits, net worth, and FDIC capitalization information. The FDIC assigns each bank with a capitalization category quarterly, either well capitalized, adequately capitalized or undercapitalized. The PFCP calculates, based on this information, the bank’s minimum collateral required, which is the value that must be pledged with the custodian for the next quarter. The minimum collateral requirement is reported to the bank, OST and custodian.

A bank depository that is well capitalized, as assigned by their federal regulatory authority, is required to pledge collateral valued at least 10% of their quarter-end public fund deposits, unless otherwise directed by OST. OST, at the advice of the Director of the Department of Consumer and Business Services, may at any time require banks to pledge additional collateral up to 110% of the value of uninsured public funds deposits. Adequately capitalized and undercapitalized bank depositories are required to pledge collateral valued at 110% of their uninsured public fund deposits. Banks that are pledging collateral at 110% are required to report actual uninsured public funds balances on a weekly basis to ensure funds are collateralized at the appropriate level.

There are three exceptions to the collateral calculation, and any exceptions are required to be collateralized at 100%.

A bank may not accept public fund deposits from one depositor in excess of their net worth. If the bank has a drop in net worth that takes them out of compliance, they are required to post 100% collateral on any amount the depositor has in excess of the bank’s net worth while working to eliminate that excess.
A bank may not hold aggregate public funds in excess of a percentage of their net worth based on their capitalization category (100% for undercapitalized, 150% for adequately capitalized, 200% for well capitalized) unless approved, for a period of 90 days or less, by OST.
A bank may only hold in excess of 30% of all aggregate public funds reported by all banks holding Oregon public funds if the excess is collateralized at 100%.

OST will provide a list all qualified bank depositories for public officials to verify the banks they do business with are pledging collateral on public fund deposits. In order to be listed on the qualified depository list, banks need to enter into the tri-party agreement with the custodian and OST. The agreement requires the bank to agree to the requirements of ORS 295 and provide quarterly reporting via the PFCP.

The PFCP was structured to provide a straightforward and uncomplicated way for banks to provide quarterly reports and request security pledges and releases. Through the PFCP, banks may enter and review quarterly reporting, view current and past maximum liability, request security pledges and releases and view past requests.

Local Governments
Public officials are required to verify that deposit accounts in excess of deposit insurance limits are only maintained at financial institutions included on the list of qualified depositories found on the Treasurer’s web site. Public officials are also required to report at least annually, or within 3days of a change, the banks they do business with, and contact information for the public official. It is the responsibility of the public official to ensure compliance with these requirements in order to eliminate personal liability in the event of a bank loss.

Custodian Bank
The custodian bank holds the collateral pledged by the banks. OST provides the custodian the minimum collateral requirement for each bank. Banks will request security pledges, releases and substitutions through the PFCP. The custodian will process the transactions as approved by OST and maintain an inventory of pledged securities. OST will monitor that adequate collateral is pledged at all times and that all banks comply with the requirements of ORS 295.