In the interest of data protection, the input of detailed information (name of account, account number) is a concern. Perhaps masking account number and using agency number (instead of agency name) would reduce risk of exposure. 

The proposed regulations would apply a “haircut” to certain securities pledged by pooled institutions, mimicking the requirement for opt-out institutions.  The proposal indicates that the haircuts would alleviate concerns about “liquidity, unreliable and inconsistent pricing and costs to execute sales of municipal securities, particularly in times of market instability.”

We oppose the proposal for the following reasons:

1. Pooled institutions are responsible to collectively cover potential losses of other pooled institutions.  This reduces the liquidity and pricing risks of individual institutions and justifies allowing pooled institutions to count 100% of their municipal bond securities for pledging.  Opt-out institutions are not responsible to cover losses of any other institutions, or receive aid in covering their own losses.  Opt-out institutions pose more risk and it is reasonable to impose a more stringent standard on opt-out institutions.
2. According to the Treasury Board minutes from February, there were 57 pooled depositories that held public deposits of $3.8 billion, 36% of all public deposit balances.  We see this as a large number of institutions that could likely absorb any potential losses from individual pooled institutions.
3. There has never been a loss on a pooled institution.
4. Municipal deposits have been inflated by federal stimulus funds from the American Rescue Plan Act.  Municipalities have until 2026 to spend the funds.  Institutions that hold these deposits need access to their full security portfolio to meet increased pledging demand.
5. Even prior to the pandemic and receipt of federal rescue funds, we, along with many pooled banks, had a high level of liquidity.  There is no liquidity concern.
6. The market for municipal securities is liquid and reflects market value.  Pooled banks are required to pledge based on the lower of book value or market value.  Requiring a haircut on top of a market value penalizes pooled banks unnecessarily.
7. National Bank, and we assume all pooled institutions, employs a reputable agent to provide market pricing on our securities portfolio as of the end of each month.  The agent is audited annually on its pricing methodologies.  In addition to the audit of the agent, each year our auditors independently verify the agent’s pricing on a significant sample of the securities we own.  We do not believe that the pricing of our municipal securities is unreliable or inconsistent.

The concerns cited are not of the level that would indicate the need to adopt the proposed regulation.

Dear Treasurer Ganeriwala:

The Virginia Bankers Association (“VBA”) represents banks of all sizes and charters and has served as the organized voice for Virginia’s $615 billion banking industry and its 42 thousand employees since 1893. We appreciate the opportunity to comment on the Treasury Board’s Proposed changes to the Virginia Security for Public Deposits Act, 1VAC75-20-10, et seq. (“SPDA Rules”).  

The VBA commends the Treasury Board for its efforts updating the SPDA Rules and appreciates the consideration given during that process to banks that participate as public depositories. While the majority of proposed alterations to the Rules raise no objections, there are two areas that we hope the Board will reconsider.

First, we believe that the new proposed haircuts in 1VAC75-20-70 B to certain securities pledged by banks that secure deposits by the pooled method are too great and respectfully request that they be reduced or eliminated. The nature of the pooled method, whereby multiple institutions collectively cover potential losses of other institutions in the pool, sufficiently reduces liquidity and pricing risks associated with collateral pledged by an individual institution. Further, municipal deposits are currently extremely inflated due to the influx of federal stimulus funds and banks are experiencing increased demand for collateralization of those funds. The proposed haircuts will exacerbate this challenge. Finally, as the Board noted in its public notice of its recommended changes to the SPDA Rules, the haircuts will disproportionately negatively affect small banks, who will have to pledge additional collateral or a different type of collateral with lesser or no haircuts even though these banks individually represent a small percentage of deposits in the pool. For these reasons, the proposed haircuts should be reduced or eliminated so that banks that secure deposits by the pooled method can value certain securities at a rate that is 100% or nearly 100% of their market value.       

Additionally, in order to maintain the discretion of the Treasury Board, the VBA recommends the following change to 1VAC75-20-130 (2)(b): “Sufficient collateralization, dedicated method. If a qualified public depository using the dedicated method of collateralization is undercollateralized for weekly reporting, it may be penalized accordingly.” We appreciate the previous cooperative work of Treasury and the industry to provide the necessarily flexibility to properly assess instances of undercollateralization. Consistent with other provisions within this Section, including for undercollateralization for depositories under the pooled method, we encourage the Board to retain the discretion on penalty assessments for undercollateralization for those depositories under the dedicated method.

Thank you for the opportunity to provide comments. If you have any questions, please feel free to contact me at 804-819-4701 or bwhitehurst@vabankers.org.

  Sincerely,

  Bruce T. Whitehurst

  President & CEO