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