Texas Senate Bill SB638

Texas 2009 - 81st Regular

• Out of Senate Committee: 3/31/09
• Voted on by Senate: 4/7/09
• Out of House Committee: 5/11/09
• Voted on by House: 5/26/09
• Governor Action: 6/19/09
• Enrolled: 5/26/09
• Passed: 6/19/09

Caption

Relating to the collateralization of certain public funds; providing administrative penalties.

Impact

The introduction of the pooled collateral program will have significant implications for both state regulations and participating financial institutions. The bill mandates that each participating institution secures its public deposits with eligible securities that equal at least 102 percent of the deposit amounts. This increased security measure is a protective step to ensure that public funds remain safeguarded against potential losses. Concurrently, the legislation allows participating institutions to utilize a single custodial account for their pooled securities, easing the administrative burden associated with managing multiple accounts for various depositor entities.

Summary

SB638 aims to amend Chapter 2257 of the Government Code to introduce a pooled collateral program that seeks to secure deposits of certain public funds. The bill establishes a framework for financial institutions to participate in a centralized collateralization system designed to protect public money deposited with them. This program is intended to streamline the collateral management process and enhance transparency between the Comptroller and participating financial institutions. By pooling collateral rather than requiring individual institutions to manage their own collateral for public deposits, the legislation facilitates a more efficient use of resources.

Contention

While proponents of SB638 argue that the bill will strengthen the security of public funds and provide a more uniform approach to collateral management, critics may voice concerns over the potential impacts of increased regulatory compliance on local institutions. The imposition of penalties for violations of collateralization requirements, such as failing to maintain the necessary collateral amounts or not adhering to reporting requirements, may be seen as excessive and could disproportionately affect smaller financial institutions. As a result, the bill could encounter resistance from entities worried about the regulatory burdens it introduces.

Additional_notes

Overall, SB638 represents a significant shift in how public funds are handled within Texas, moving towards a centralized and more standardized collateralization procedure. Its implications could reverberate across the banking sector, influencing how financial institutions engage with governmental entities and manage public funds. The effectiveness of this bill will largely depend on the subsequent rules adopted by the comptroller and the willingness of financial institutions to engage with the new program in a manner that meets compliance requirements.