N.Y. General Municipal Law § 10: Deposits of public money; security

§ 10. Deposits of public money; security. 1. For purposes of this

section:

a. "Local government" shall mean any municipal corporation, school

district, board of cooperative educational services, district

corporation, special improvement district governed by a separate board

of commissioners, industrial development agency or authority or a public

library.

b. "Public funds" shall mean funds of a local government.

c. "Public deposits" shall mean deposits of public funds in a bank or

trust company which are available for all uses generally permitted by

the bank or trust company to the depositing local government for

actually and finally collected funds under the bank's or trust company's

account agreement or policies.

d. "Bank" shall mean a bank as defined by the banking law or a

national banking association located and authorized to do business in

New York.

e. "Trust company" shall mean a trust company as defined by the

banking law and located and authorized to do business in New York.

f. "Eligible securities" shall mean any of the following:

(i) Obligations issued by the United States of America, an agency

thereof or a United States government sponsored corporation or

obligations fully insured or guaranteed as to the payment of principal

and interest by the United States of America, an agency thereof or a

United States government sponsored corporation.

(ii) Obligations issued or fully guaranteed by the International Bank

for Reconstruction and Development, the Inter-American Development Bank,

the Asian Development Bank, and the African Development Bank.

(iii) Obligations partially insured or guaranteed by any agency of the

United States of America, at a proportion of the market value of the

obligation that represents the amount of the insurance or guaranty.

(iv) Obligations issued or fully insured or guaranteed by this state,

obligations issued by a municipal corporation, school district or

district corporation of this state or obligations of any public benefit

corporation which under a specific state statute may be accepted as

security for deposit of public moneys.

(v) Obligations issued by states (other than this state) of the United

States rated in one of the three highest rating categories by at least

one nationally recognized statistical rating organization.

(vi) Obligations of Puerto Rico rated in one of the three highest

rating categories by at least one nationally recognized statistical

rating organization.

(vii) Obligations of counties, cities and other governmental entities

of another state having the power to levy taxes that are backed by the

full faith and credit of such governmental entity and rated in one of

the three highest rating categories by at least one nationally

recognized statistical rating organization.

(viii) Obligations of domestic corporations rated in one of the four

highest rating categories by at least one nationally recognized

statistical rating organization.

(ix) Any mortgage related securities, as defined in the Securities

Exchange Act of 1934, as amended, which may be purchased by banks under

the limitations established by federal bank regulatory agencies.

(x) Commercial paper and bankers' acceptances issued by a bank (other

than the bank with which the money is being deposited or invested) rated

in the highest short-term category by at least one nationally recognized

statistical rating organization and having maturities of not longer than

sixty days from the date they are pledged.

(xi) Zero-coupon obligations of the United States government marketed

as "Treasury STRIPS".

g. "Eligible surety bond" shall mean a bond executed by an insurance

company authorized to do business in this state, the claims-paying

ability of which is rated in the highest rating category by at least two

nationally recognized statistical rating organizations.

h. "Eligible letter of credit" shall mean an irrevocable letter of

credit issued in favor of the local government for a term not to exceed

ninety days by a bank (other than the bank with which the money is being

deposited or invested) whose commercial paper and other unsecured

short-term debt obligations (or, in the case of a bank which is the

principal subsidiary of a holding company, whose holding company's

commercial paper and other unsecured short-term debt obligations) are

rated in one of the three highest rating categories (based on the credit

of such bank or holding company) by at least one nationally recognized

statistical rating organization or by a bank (other than the bank with

which the money is being deposited or invested) that is incompliance

with applicable federal minimum risk-based capital requirements.

2. a. (i) The governing board of every local government shall

designate one or more banks or trust companies for the deposit of public

funds, the disposition of which is not otherwise provided for by law,

received by the chief fiscal officer or any other officer authorized by

law to make deposits. Such designation shall be by resolution of the

governing board or, in the case of a city, such other body as may be

authorized or required by law to designate depositaries. Such resolution

shall specify the maximum amount which may be kept on deposit at any

time in each such bank or trust company. Such designations and amounts

may be changed at any time by further resolution.

(ii) The governing board of a local government that has designated one

or more banks or trust companies for the deposit of public funds

pursuant to subparagraph (i) of this paragraph may, in its discretion,

authorize the designated bank or trust company to arrange for the

redeposit of the local government's funds in one or more banking

institutions, as defined in section nine-r of the banking law, for the

account of the local government, through a deposit placement program

that meets all of the following conditions:

(A) On or after the date that the local government's funds are

received, the designated bank or trust company (I) arranges for the

redeposit of such funds into deposit accounts in one or more banking

institutions and (II) serves as custodian for the local government with

respect to the funds redeposited into such accounts.

(B) Local government funds deposited in a designated bank or trust

company in accordance with this subparagraph and held in the designated

bank or trust company in excess of the amount insured by the federal

deposit insurance corporation pending redeposit of the funds pursuant to

this subparagraph shall be secured in accordance with subdivision three

of this section.

(C) The full amount of local government funds redeposited by the

designated bank or trust company into deposit accounts in banking

institutions pursuant to this subparagraph (plus accrued interest, if

any) shall be insured by the federal deposit insurance corporation.

(D) At the same time that the money of the local government is

redeposited pursuant to this subparagraph, the selected depository

receives an amount of deposits from customers of other financial

institutions pursuant to the deposit placement program that are at least

equal to the amount of the local government's funds redeposited by the

designated bank or trust company.

b. Except as otherwise provided by law, all deposits shall be made to

the credit of the local government. The deposit of public funds pursuant

to this subdivision shall release the officer making the deposit and his

or her surety from any liability for loss of such public funds by reason

of the default or insolvency of any such bank or trust company.

c. The governing board of a local government, in which a banking

development district has been designated by the superintendent of

financial services pursuant to section ninety-six-d of the banking law,

may designate a bank, trust company or national bank located in such

district for the deposit of public funds, the disposition of which is

not otherwise provided for by law, received by the chief fiscal officer

or other officer authorized by law to make such deposits. Such

designation shall be by resolution of the governing board or, in the

case of a city, such other body as may be authorized or required by law

to designate depositories. Such resolution shall specify the maximum

amount which may be kept on deposit at any time with such bank, trust

company or national bank located in such district. Subject to an

agreement between such governing board and such banking institution,

public funds deposited in such banking institution may earn a fixed

interest rate which is at or below such banking institution's posted two

year certificate of deposit rate. In those instances where there is such

an agreement, its terms and conditions shall also be specified in the

resolution. Any such designation, amount, or agreement provisions may be

changed at any time by further resolution.

3. All public deposits in excess of the amount insured under the

provisions of the Federal Deposit Insurance Act as now or hereafter

amended shall be secured in accordance with this subdivision:

a. The officers making a deposit may accept a pledge of eligible

securities having in the aggregate a market value at least equal to the

aggregate amount of public deposits from such officers, or a pledge of a

pro rata portion of a pool of eligible securities having in the

aggregate a market value at least equal to the aggregate amount of

public deposits from all such officers within the state at such bank or

trust company, together with a security agreement from the bank or trust

company. The security agreement and custodial agreement referred to

below may be the same agreement including when the bank or trust company

holding the public deposits holds the collateral for the public body.

The security agreement shall provide that such eligible securities or

pro rata portion of a pool of eligible securities are being pledged by

the bank or trust company as security for the public deposits, together

with agreed upon interest, if any, and any costs or expenses arising out

of the collection of such deposit upon a default. It shall also provide

for the conditions under which the securities or pro rata portion of a

pool of eligible securities held may be sold, presented for payment,

substituted or released and the events of default which will enable the

local government to exercise its rights against the pledged securities.

Such agreement shall include all provisions deemed necessary and

sufficient to secure in a satisfactory manner the local government's

interest in the collateral. The custodial agreement shall provide that

the pledged securities or pro rata portion of a pool of eligible

securities will be held by the custodial bank or trust company as agent

of, and custodian for, the local government, and will be kept separate

and apart from the general assets of the custodial bank or trust company

and it shall also provide for the manner in which the custodial bank or

trust company shall confirm the receipt, substitution or release of the

collateral. Such agreement shall provide for the frequency of

revaluation of collateral by the custodial bank or trust company and the

substitution of collateral when a change in the rating of a security

causes ineligibility pursuant to paragraph f of subdivision one of this

section. Such agreement shall include all provisions deemed necessary

and sufficient to secure in a satisfactory manner the local government's

interest in the collateral. Such agreement may also contain such other

provisions as the governing board may deem necessary.

b. Whenever eligible securities delivered to a custodial bank or trust

company pursuant to this paragraph are transferred by entries on the

books of a federal reserve bank or other book-entry system operated by a

federally regulated entity without physical delivery of the evidence of

such obligations, the records of the custodial bank or trust company

shall show, at all times, the interest of the local government in such

securities or pro rata portion of a pool of eligible securities as set

forth in the security agreement.

c. (i) In lieu of or in addition to the deposit of eligible

securities, the officers making a deposit may accept an eligible surety

bond payable to such local government as security for the payment of one

hundred percent, or an eligible letter of credit payable to such local

government as security for the payment of one hundred forty percent, of

the aggregate amount of public deposits from such officers and the

agreed upon interest, if any. The terms and conditions of any eligible

surety bond shall be approved by the governing board.

(ii) In lieu of or in addition to the deposit of eligible securities,

the officers making a deposit may, in the case of an irrevocable letter

of credit issued in favor of the local government by a federal home loan

bank whose commercial paper and other unsecured short-term debt

obligations are rated in the highest rating category by at least one

nationally recognized statistical rating organization, accept such

letter of credit payable to such local government as security for the

payment of one hundred percent of the aggregate amount of public

deposits from such officers and the agreed upon interest, if any.

d. For purposes of determining the market value of securities as

required by this subdivision:

(i) The eligible securities described in subparagraphs (viii), (x) and

(xi) of paragraph f of subdivision one of this section shall be valued

at eighty percent of their market value.

(ii) The eligible securities described in subparagraph (ix) of

paragraph f of subdivision one of this section shall be valued at

seventy percent of their market value.

(iii) Of the eligible securities described in subparagraphs (v), (vi)

and (vii) of paragraph f of subdivision one of this section, those

securities rated in the highest category shall be valued at one hundred

percent of their market value; those securities rated in the second

highest rating category shall be valued at ninety percent of their

market value; and those securities rated in the third highest rating

category shall be valued at eighty percent of their market value. When

two nationally recognized statistical rating organizations rate a

security in two different categories, the security shall be considered

to be rated in the higher of the two categories.

4. (a) Notwithstanding any other provision of law to the contrary, the

chief fiscal officer, or other officer authorized by law to make

deposits, may, subject to the approval of the governing body of a local

government, by resolution, enter into a contract with a courier service

for the purpose of causing the deposit of public funds with a bank or

trust company as provided in this section.

(b) The entrusting of public funds for deposit pursuant to paragraph

(a) of this subdivision shall release the officer entrusting the public

funds to the courier service and his or her surety from any liability

for loss of such public funds by the courier service in the process of

delivering such public funds to the designated bank or trust company.

(c) The local government authorizing the deposit of public funds by a

courier service pursuant to paragraph (a) of this subdivision shall

require the courier service to obtain a surety bond for the full amount

entrusted to the courier, payable to the local government and executed

by an insurance company authorized to do business in this state, the

claims paying ability of which is rated in the highest rating category

by at least two nationally recognized statistical rating organizations,

to insure against any loss of public funds entrusted to the courier

service for deposit or failure to deposit the full amount entrusted to

the courier.

(d) A deposit made by a courier on behalf of a local government shall

be deemed to be a deposit made by the chief fiscal officer or other

officer entrusting such funds for purposes of the requirements contained

in this section for securing public deposits.

(e) A bank or trust company may, from time to time and as agreed upon

with a local government, reimburse all or part of, but not more than,

the actual cost incurred by the local government in transporting cash,

negotiable instruments or other items for deposit through a courier

service. Any such reimbursement agreement shall apply only to a

specified deposit transaction, and may be subject to such terms,

conditions and limitations as the bank or trust company deems necessary

to ensure sound banking practices, including, but not limited to, any

terms, conditions or limitations that may be required by the department

of financial services or other federal or state authority.