As noted in the FDIC’s latest Frequently Asked Questions on the TLGP, the FDIC will fully guarantee public funds deposits in NOW accounts so long as the interest rate does not exceed 0.5 percent and the institution has committed to maintain the interest rate at or below 0.5 percent (assuming the institution has not opted out of the Transaction Account Guarantee). The amount of collateral required for such guaranteed public funds, if any, is imposed by state law and not by the FDIC’s regulation. As noted by the FDIC, the amount of collateral will depend upon the wording and meaning of each state’s laws.
As noted below, the Georgia statutes are not 100% clear, but we believe that Georgia depository institutions should not be required to provide collateral for public funds that are fully guaranteed by the FDIC under the Transaction Account Guarantee portion of the TLGP. We believe the statutes should be read as treating the FDIC guarantee in the same manner as FDIC insurance. Although the FDIC has generally been careful to use the term “guarantee” rather than “insurance” for the Transaction Account Guarantee portion of TLGP, in their December 4th press release, the FDIC stated that such funds will be “fully insured by the FDIC.”
We also understand that the going rate for public funds in Georgia is currently in excess of the 50 basis points permitted for NOW accounts to be treated as noninterest-bearing transactional accounts under TLGP. However, given moving rates and the possibility of fully guaranteed FDIC funds, we could see enterprising bankers using this provision to their advantage.
Moreover, all banks with public fund deposits should re-examine their calculations for the amount of securities that must be pledged to confirm that they have taken into effect the increase in FDIC deposit insurance from $100,000 to $250,000.