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Governments of all shapes and sizes typically entrust depositories (aka: banks) with millions of dollars in checking accounts, savings accounts, and certificates of deposit. The safety of public funds is paramount—so much so that government entities generally are required to protect their deposits through insurance, collateralization, or other means.
In 2019, the State of Georgia passed a law (O.C.G.A. § 45-8-14.1) to allow “any third-party service provider (to facilitate) the placement of deposits in accordance with this Code.”
What does the law in Georgia mean for public entities (such as local governments like ours) and banks who do business in Georgia?
As a result of this law, the city does not require our bank to collateralize city deposits, as it would be very burdensome for staff to continually monitor whether the pledged assets maintained sufficient value to cover the full value of our deposits. Instead, we use an insured cash sweep service which provides access to the Full Faith and Credit of the U.S. Government through FDIC Insurance. This is done through a deposit placement agreement with our banking institution (Oconee State Bank) which enables them to “sweep” or place funds (not to exceed the standard maximum deposit insurance amount of $250,000) at the end of each business day with other FDIC insured banking institutions; thus, protecting taxpayer funds by giving us access to multi-million-dollar FDIC insurance protection while also earning interest.
Custodial Credit Risk – Deposits.
Custodial credit risk is the risk that in the event of a financial institution failure, the city’s deposits may not be returned. The city’s investment policy requires that all deposits be federally insured or fully collateralized.
State of Georgia law limits investments to include certificates of deposit, repurchase agreements, direct and agency obligations of the United States, obligations of any corporation of the United States government, obligations of the State of Georgia or other states, obligations of other political subdivisions of the State of Georgia, and pooled investment programs of the State of Georgia. The city has no investment policy that would further limit its investment choices.