AGO 87-1.

Case Date:January 06, 1987
Colorado Attorney General Opinions 1987. AGO 87-1. January 6, 1987Department of Law Attorney General Opinion FORMAL OPINION of DUANE WOODARD Attorney General Opinion No. 87-1 AG Alpha No. TR AD AGAPA B. J. Thornberry Deputy State Treasurer Department of the Treasury 140 State Capitol Denver, CO 80203 RE: Whether a pledge of eligible collateral pursuant to the Colorado Public Deposit Protection Act protects public deposits if a public depository fails.Dear Ms. Thornberry: I am writing in response to your letter requesting a legal opinion concerning the adequacy of present procedures for pledging collateral to secure public deposits in the event of the failure of a bank or savings and loan association. You advise that presently the state treasurer follows the statutory procedures established by the Public Deposit Protection Act of 1975, article 10.5, title 11, C.R.S. (1986 Supp.), and the Savings and Loan Association Public Deposit Protection Act, article 47, title 11, C.R.S. (1986 Supp.). The statutory requirements pertaining to each type of financial institution are very similar in most respects and will be referred to collectively as the Public Deposit Protection Act or the "PDPA". You are concerned whether the Federal Deposit Insurance Corporation (FDIC) and the Federal Savings and Loan Insurance Corporation (FSLIC) would honor pledges of collateral made pursuant to the PDPA in the event a financial institution fails and there is inadequate federal insurance coverage for all public deposits. QUESTION PRESENTED AND CONCLUSION Is the pledge of eligible collateral by a public depository pursuant to the requirements of the PDPA sufficient to protect uninsured public deposits against the claims of other creditors in the event of the failure of a public depository? Yes. The PDPA establishes a trust fund or special deposit for public deposits secured by eligible collateral pledged pursuant to the PDPA. The receiver of a failed institution would be required to apply the proceeds of the eligible collateral to pay public deposits rather than satisfying the claims of other creditors. ANALYSIS Governmental units, including the state, are authorized to deposit public funds in banks and savings and loan associations having their principal offices in the state. Sections 11-10.5-118 and 11-47-118, C.R.S. (1986 Supp.). Public deposits must be made with eligible public depositories pursuant to statutory requirements designed to protect public deposits by requiring that deposits be either federally insured or secured by eligible collateral. You have advised that in the event of the failure of a public depository, the state would expect to recover uninsured public deposits from the sale of eligible collateral pledged pursuant to the PDPA. The FDIC is responsible for liquidating the assets of failed national banks. Its counterpart for national savings and loan associations is the FSLIC. In the event of the failure of a state chartered bank or savings and...

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