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  S.B. No. 638
 
 
 
 
AN ACT
  relating to the collateralization of certain public funds;
  providing administrative penalties.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Chapter 2257, Government Code, is amended by
  adding Subchapter F to read as follows:
  SUBCHAPTER F.  POOLED COLLATERAL TO SECURE
  DEPOSITS OF CERTAIN PUBLIC FUNDS
         Sec. 2257.101.  DEFINITION. In this subchapter,
  "participating institution" means a financial institution that
  holds one or more deposits of public funds and that participates in
  the pooled collateral program under this subchapter.
         Sec. 2257.102.  POOLED COLLATERAL PROGRAM. (a)  As an
  alternative to collateralization under Subchapter B, the
  comptroller by rule shall establish a program for centralized
  pooled collateralization of deposits of public funds and for
  monitoring collateral maintained by participating institutions.
  The rules must provide that deposits of public funds of a county are
  not eligible for collateralization under the program. The
  comptroller shall provide for a separate collateral pool for any
  single participating institution's deposits of public funds.
         (b)  Under the pooled collateral program, the collateral of a
  participating institution pledged for a public deposit may not be
  combined with, cross-collateralized with, aggregated with, or
  pledged to another participating institution's collateral pools
  for pledging purposes.
         (c)  A participating institution may pledge its pooled
  securities to more than one participating depositor under contract
  with that participating institution.
         (d)  The pooled collateral program must provide for:
               (1)  participation in the program by a participating
  institution and each affected public entity to be voluntary;
               (2)  uniform procedures for processing all collateral
  transactions that are subject to an approved security agreement
  described by Section 2257.103; and
               (3)  the pledging of a participating institution's
  collateral securities using a single custodial account instead of
  an account for each depositor of public funds.
         Sec. 2257.103.  PARTICIPATION IN POOLED COLLATERAL PROGRAM.
  A financial institution may participate in the pooled collateral
  program only if:
               (1)  the institution has entered into a binding
  collateral security agreement with a public agency for a deposit of
  public funds and the agreement permits the institution's
  participation in the program;
               (2)  the comptroller has approved the institution's
  participation in the program; and
               (3)  the comptroller has approved or provided the
  collateral security agreement form used.
         Sec. 2257.104.  COLLATERAL REQUIRED; CUSTODIAN TRUSTEE.
  (a)  Each participating institution shall secure its deposits of
  public funds with eligible securities the total value of which
  equals at least 102 percent of the amount of the deposits of public
  funds covered by a security agreement described by Section 2257.103
  and deposited with the participating institution, reduced to the
  extent that the United States or an instrumentality of the United
  States insures the deposits. For purposes of determining whether
  collateral is sufficient to secure a deposit of public funds,
  Section 2257.022(b) does not apply to a deposit of public funds held
  by the participating institution and collateralized under this
  subchapter.
         (b)  A participating institution shall provide for the
  collateral securities to be held by a custodian trustee, on behalf
  of the participating institution, in trust for the benefit of the
  pooled collateral program. A custodian trustee must qualify as a
  custodian under Section 2257.041.
         (c)  The comptroller by rule shall regulate a custodian
  trustee under the pooled collateral program in the manner provided
  by Subchapter C to the extent practicable. The rules must ensure
  that a custodian trustee depository does not own, is not owned by,
  and is independent of the financial institution or institutions for
  which it holds the securities in trust, except that the rules must
  allow the following to be a custodian trustee:
               (1)  a federal reserve bank;
               (2)  a banker's bank, as defined by Section 34.105,
  Finance Code; and
               (3)  a federal home loan bank.
         Sec. 2257.105.  MONITORING COLLATERAL. (a)  Each
  participating institution shall file the following reports with the
  comptroller electronically and as prescribed by rules of the
  comptroller:
               (1)  a daily report of the aggregate ledger balance of
  deposits of public agencies participating in the pooled collateral
  program that are held by the institution, with each public entity's
  funds held itemized;
               (2)  a weekly summary report of the total market value
  of securities held by a custodian trustee on behalf of the
  participating institution;
               (3)  a monthly report listing the collateral securities
  held by a custodian trustee on behalf of the participating
  institution, together with the value of the securities; and
               (4)  as applicable, a participating institution's
  annual report that includes the participating institution's
  financial statements.
         (b)  The comptroller shall provide the participating
  institution an acknowledgment of each report received.
         (c)  The comptroller shall provide a daily report of the
  market value of the securities held in each pool.
         (d)  The comptroller shall post each report on the
  comptroller's Internet website.
         Sec. 2257.106.  ANNUAL ASSESSMENT. (a)  Once each state
  fiscal year, the comptroller shall impose against each
  participating institution an assessment in an amount sufficient to
  pay the costs of administering this subchapter. The amount of an
  assessment must be based on factors that include the number of
  public entity accounts a participating institution maintains, the
  number of transactions a participating institution conducts, and
  the aggregate average weekly deposit amounts during that state
  fiscal year of each participating institution's deposits of public
  funds collateralized under this subchapter. The comptroller by
  rule shall establish the formula for determining the amount of the
  assessments imposed under this subsection.
         (b)  The comptroller shall provide to each participating
  institution a notice of the amount of the assessment against the
  institution.
         (c)  A participating institution shall remit to the
  comptroller the amount assessed against it under this section not
  later than the 45th day after the date the institution receives the
  notice under Subsection (b).
         (d)  Money remitted to the comptroller under this section may
  be appropriated only for the purposes of administering this
  subchapter.
         Sec. 2257.107.  PENALTY FOR REPORTING VIOLATION. The
  comptroller may impose an administrative penalty against a
  participating institution that does not timely file a report
  required by Section 2257.105.
         Sec. 2257.108.  NOTICE OF COLLATERAL VIOLATION;
  ADMINISTRATIVE PENALTY. (a)  The comptroller may issue a notice to
  a participating institution that the institution appears to be in
  violation of collateral requirements under Section 2257.104 and
  rules of the comptroller.
         (b)  The comptroller may impose an administrative penalty
  against a participating institution that does not maintain
  collateral in an amount and in the manner required by Section
  2257.104 and rules of the comptroller if the participating
  institution has not remedied the violation before the third
  business day after the date a notice is issued under Subsection (a).
         Sec. 2257.109.  PENALTY FOR FAILURE TO PAY ASSESSMENT. The
  comptroller may impose an administrative penalty against a
  participating institution that does not pay an assessment against
  it in the time provided by Section 2257.106(c).
         Sec. 2257.110.  PENALTY AMOUNT; PENALTIES NOT EXCLUSIVE.
  (a)  The comptroller by rule shall adopt a formula for determining
  the amount of a penalty under this subchapter. For each violation
  and for each day of a continuing violation, a penalty must be at
  least $100 per day and not more than $1,000 per day. The penalty
  must be based on factors that include:
               (1)  the aggregate average weekly deposit amounts
  during the state fiscal year of the institution's deposits of
  public funds;
               (2)  the number of violations by the institution during
  the state fiscal year;
               (3)  the number of days of a continuing violation; and
               (4)  the average asset base of the institution as
  reported on the institution's year-end report of condition.
         (b)  The penalties provided by Sections 2257.107-2257.109
  are in addition to those provided by Subchapter D or other law.
         Sec. 2257.111.  PENALTY PROCEEDING CONTESTED CASE. A
  proceeding to impose a penalty under Section 2257.107, 2257.108, or
  2257.109 is a contested case under Chapter 2001.
         Sec. 2257.112.  SUIT TO COLLECT PENALTY. The attorney
  general may sue to collect a penalty imposed under Section
  2257.107, 2257.108, or 2257.109.
         Sec. 2257.113.  ENFORCEMENT STAYED PENDING REVIEW.
  Enforcement of a penalty imposed under Section 2257.107, 2257.108,
  or 2257.109 may be stayed during the time the order is under
  judicial review if the participating institution pays the penalty
  to the clerk of the court or files a supersedeas bond with the court
  in the amount of the penalty. A participating institution that
  cannot afford to pay the penalty or file the bond may stay the
  enforcement by filing an affidavit in the manner required by the
  Texas Rules of Civil Procedure for a party who cannot afford to file
  security for costs, subject to the right of the comptroller to
  contest the affidavit as provided by those rules.
         Sec. 2257.114.  USE OF COLLECTED PENALTIES. Money collected
  as penalties under this subchapter may be appropriated only for the
  purposes of administering this subchapter.
         SECTION 2.  Subsection (e), Section 404.031, Government
  Code, is amended to read as follows:
         (e)  Instead of depositing pledged securities with the
  comptroller, a depository may deposit them with a custodian. The
  custodian may be the (i) Texas Treasury Safekeeping Trust Company,
  (ii) [or] a state or national bank that has a capital stock and
  permanent surplus of not less than $5 million, is a state
  depository, and has been designated as a custodian by the
  comptroller, or (iii) a financial institution authorized to
  exercise fiduciary powers that has a capital stock and permanent
  surplus of not less than $5 million, has its main office, branch
  office, or a trust office in this state, and has been designated as
  a custodian by the comptroller. For purposes of this subsection,
  "financial institution" has the meaning assigned by Section
  201.101(1), Finance Code. The comptroller may designate those
  custodial applicants that are acceptable and may reject those whose
  management or condition, in the opinion of the comptroller, do not
  warrant the placing of securities pledged by state depositories.
  The comptroller may adopt and enforce rules governing the
  designation and conduct of custodians with respect to the
  acceptance and holding of securities pledged by state depositories
  that the public interest requires and that are not inconsistent
  with the law governing custodians as set forth in this chapter. The
  state depository and the custodian of securities pledged by that
  state depository may not be the same bank or be owned by the same
  bank holding company. The securities shall be held in trust by the
  custodian to secure funds deposited by the comptroller in the state
  depository pledging the securities. On receipt of the securities,
  the custodian shall immediately, by book entry or otherwise,
  identify on its books and records the pledge of the securities and
  shall promptly issue and deliver to the comptroller controlled
  trust receipts for the securities pledged. The security evidenced
  by the trust receipts is subject to inspection by the comptroller at
  any time. The depository pledging the securities shall pay the
  charges, if any, of the custodian bank for accepting and holding the
  securities. The custodian, acting alone or through a permitted
  institution, is for all purposes under state law and
  notwithstanding Chapters 8 and 9, Business & Commerce Code, the
  bailee or agent of the comptroller. The security interest arising
  out of a pledge of securities to secure deposits of the state is
  created, attaches, and is perfected for all purposes under state
  law from the time the custodian identifies the pledge of the
  securities on its books and records and issues the trust receipts.
  The security interest remains perfected as of that time in the hands
  of all subsequent custodians and permitted institutions.
         SECTION 3.  Subsection (d), Section 2257.041, Government
  Code, is amended to read as follows:
         (d)  A custodian must be approved by the public entity and
  be:
               (1)  a state or national bank that:
                     (A)  is designated by the comptroller as a state
  depository;
                     (B)  has its main office or a branch office in this
  state; and
                     (C)  has a capital stock and permanent surplus of
  $5 million or more;
               (2)  the Texas Treasury Safekeeping Trust Company;
               (3)  a Federal Reserve Bank or a branch of a Federal
  Reserve Bank; [or]
               (4)  a federal home loan bank; or
               (5)  a financial institution authorized to exercise
  fiduciary powers that is designated by the comptroller as a
  custodian pursuant to Section 404.031(e).
         SECTION 4.  The comptroller of public accounts shall adopt
  rules as necessary to implement Subchapter F, Chapter 2257,
  Government Code, as added by this Act, so that the pooled collateral
  program established under that subchapter may begin operating not
  later than the first business day of April 2010.
         SECTION 5.  This Act takes effect September 1, 2009.
 
 
 
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
         I hereby certify that S.B. No. 638 passed the Senate on
  April 7, 2009, by the following vote:  Yeas 29, Nays 0, two present
  not voting.
 
 
  ______________________________
  Secretary of the Senate    
 
         I hereby certify that S.B. No. 638 passed the House on
  May 26, 2009, by the following vote:  Yeas 145, Nays 0, one present
  not voting.
 
 
  ______________________________
  Chief Clerk of the House   
 
 
 
  Approved:
 
  ______________________________ 
              Date
 
 
  ______________________________ 
            Governor