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As events unfold in our financial system, many custodians of public funds have expressed concern about the safety of the money entrusted to them. With regard to deposits made in bank accounts, the Public Deposit Protection Act (PDPA) requires that eligible depository banks pledge assets to the Division of Banking for deposits that exceed the amount insured by the FDIC.
Banks must pledge collateral having a market value equal to or greater than 102 percent of the uninsured deposits at all times – most hold higher levels of collateral. The Division approves all pledges and releases of collateral, and the pledged items are maintained by an escrow institution or at the Division. An independent service provides monthly market values for securities. To ensure that items pledged under the PDPA are liquid and safe, some collateral is valued at a discount, or haircut, from the market or par value. The items eligible for pledging are listed in Banking Board Rule PDP3 and Banking Board Rule PDP4 sets forth discounts as applicable.
Eligible public depository banks are examined by the Division of Banking, and audited annually by an independent auditor. Capital levels are monitored. Should conditions warrant it, eligible banks may be required to pledge additional collateral or divest of public deposits.
Custodians may contact the Division of Banking to make sure their deposits are being reported. Additional information on deposit insurance is available at the FDIC web site at www.fdic.gov.