Washington Administrative Code Title 389 - State Treasurer's Office (Public Deposit Protection Commission)
Washington Administrative Code (WAC) Title 389 — State Treasurer's Office
Focus: Public Deposit Protection Commission (PDPC)
Overview
WAC Title 389 governs the activities of the Washington State Treasurer’s Office, including administration of the Public Deposit Protection Commission (PDPC). The PDPC is a statutory body established to protect public funds deposited in financial institutions within the state.
The Public Deposit Protection Commission ensures the safety of public funds deposited by local governments, public agencies, and other public entities by regulating where and how those funds are deposited, and by administering collateral and insurance requirements on banks and credit unions that hold public deposits.
Statutory Authority
The PDPC operates under authority granted by RCW 39.58 (Public Deposit Protection Act). This law mandates the PDPC to:
Approve and regulate public deposits
Require collateralization to protect deposits in case of bank failure
Set standards and monitor compliance by financial institutions holding public funds
Administer an insurance program covering public deposits beyond federal insurance limits
The WAC Title 389 contains the detailed rules and procedures to implement the RCW mandates.
Purpose of the PDPC
Protect public funds in case of financial institution failure
Reduce risk to taxpayers by ensuring local governments' deposits are secure
Provide confidence in the public banking system
Minimize losses from bank insolvencies by requiring adequate collateral or insurance
Key Provisions of WAC Title 389 Related to PDPC
Definitions and Scope
WAC clarifies which entities are public depositors and which institutions are subject to PDPC rules. This includes local governments, special purpose districts, school districts, and state agencies.
Collateral Requirements
Financial institutions that hold public deposits must pledge collateral or provide insurance to cover deposits exceeding federal insurance limits (FDIC or NCUA). The rules specify acceptable types of collateral, valuation methods, and monitoring procedures.
Application and Certification Process
Banks and credit unions must apply for certification by the PDPC to hold public deposits. The commission evaluates financial condition, compliance with laws, and collateral sufficiency.
Reporting and Monitoring
Certified institutions must regularly report financial data and collateral status to the PDPC. The commission monitors institutions continuously and can require corrective action.
Interest Rates and Terms
The PDPC may regulate terms of public deposits, including interest rates and withdrawal terms, to ensure safety and liquidity.
Loss Recovery Procedures
In the event of a bank or credit union failure, the PDPC coordinates recovery of public deposits, applying collateral or insurance to reimburse affected public depositors.
Appeals and Hearings
The rules provide for administrative hearings and appeals if a financial institution is denied certification or if other enforcement actions are taken.
Case Law Related to WAC Title 389 and PDPC
There is relatively limited published case law specifically interpreting WAC Title 389 or the PDPC, because most disputes under this framework are resolved administratively or through regulatory enforcement rather than litigation. However, related cases provide insight into how courts view deposit protection and administrative regulation:
1. Deference to Administrative Expertise
Courts generally defer to the PDPC and the State Treasurer’s Office in interpreting and applying rules related to public deposit protection, as long as their actions are consistent with the statute (RCW 39.58) and are not arbitrary or capricious.
Key principle: Courts uphold agency decisions on certification or collateral requirements unless the decision exceeds statutory authority or violates due process.
2. Public Funds and Depository Obligations
Cases addressing public funds generally affirm that public entities have a right to safeguard their funds, and financial institutions holding such deposits must comply with statutory and regulatory safeguards.
Example principle: Financial institutions can be held accountable for failing to secure adequate collateral or insurance when accepting public deposits, protecting the public entities from loss.
3. Due Process in Certification and Enforcement
If a bank or credit union is denied certification or has its certification revoked by the PDPC, courts require the agency to provide procedural due process, including notice of deficiencies and an opportunity to respond or appeal.
Illustrative ruling: Courts have struck down commission actions where institutions were not given adequate hearing rights or where the agency failed to follow its own procedures.
4. Contract and Statutory Compliance
Financial institutions must comply with both contractual agreements and statutory obligations regarding public deposits. Cases enforce strict compliance with collateral and insurance requirements under the PDPC’s rules.
Result: Institutions failing to comply may lose certification, be subject to penalties, or face civil liability to public entities.
Hypothetical Example Scenario
Imagine a city deposits $5 million in a local bank. The bank must have FDIC insurance plus collateral covering amounts exceeding FDIC limits. The PDPC monitors this arrangement.
If the bank fails to maintain proper collateral, the PDPC can revoke its certification to hold public funds.
If the bank becomes insolvent, PDPC uses pledged collateral to reimburse the city.
If the bank disputes a revocation, PDPC must provide a hearing per WAC procedures before final action.
Summary
WAC Title 389 establishes the detailed regulatory framework under which the Public Deposit Protection Commission protects public funds deposited with financial institutions in Washington State.
It implements statutory mandates to require collateral or insurance, certify eligible depositories, monitor ongoing compliance, and manage loss recovery.
While case law is limited, courts generally uphold the commission’s authority, require due process protections, and enforce compliance with deposit protection requirements.
The overall goal is to protect taxpayers by safeguarding public money from bank failures and financial institution risks.
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