Bill gives non-FDIC banks 10-year breather

A pending government deposits bill has been amended to accommodate non-federally insured banks that currently hold public funds.

The House of Representatives, in passing House Bill 16-4, included a grandfathering provision allowing banks that are not members of the Federal Deposit Insurance Corporation to continue receiving government deposits for the next 10 years.

H.B. 16-4 proposes minimum requirements for banks to meet before any public funds are deposited into them. Under the bill, funds amounting to less than $100,000 must be deposited only with FDIC-insured banks. All of the deposited funds in excess of the insurance coverage should be secured by bank assets valued at all time at 100 percent of the excess funds. Bank assets that serve as collateral for the public funds should be in the form of U.S. Treasury bonds and U.S. government agency securities.

Bank of Saipan is one example of a non-FDIC bank that currently holds government funds. According to Secretary John S. Del Rosario, the Department of Public Lands currently has over $4 million under receivership held in a master account at Bank of Saipan. On a monthly basis, Bank of Saipan transfers $29,500 plus interest to a revolving account. DPL withdraws from this revolving account every six months and transfers the funds to an FDIC account at Bank of Guam.

But with the grandfathering provision, Bank of Saipan would be able to keep DPL’s deposits for the next 10 years.

The conditions are that the bank must furnish and pledge security in the form of U.S. Treasury bills valued at 100 percent of the deposits, come into compliance with the law within 10 years of the effective date, and issue disclosures of public deposits on a quarterly basis.

Some lawmakers have raised concerns about the grandfathering provision. Rep. Tina Sablan, for one, said the amendment “raised questions about why public funds were deposited in such banks in the first place if the solvency of the banks would be in jeopardy should these funds be withdrawn.”

But Sablan, who eventually voted for the bill, was assured by proponents of the bill that the included conditions “would help protect public funds without creating a crisis for banks that presently hold these funds.”

The bill now heads to Senate.