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Minnesota Legislature

Office of the Revisor of Statutes

118A.03 WHEN AND WHAT COLLATERAL REQUIRED.
    Subdivision 1. For deposits beyond insurance. To the extent that funds on deposit at the
close of the financial institution's banking day exceed available federal deposit insurance, the
government entity shall require the financial institution to furnish collateral security or a corporate
surety bond executed by a company authorized to do business in the state. For the purposes of
this section, "banking day" has the meaning given in Federal Reserve Board Regulation CC,
Code of Federal Regulations, title 12, section 229.2(f), and incorporates a financial institution's
cutoff hour established under section 336.4-108.
    Subd. 2. In lieu of surety bond. The following are the allowable forms of collateral in lieu
of a corporate surety bond:
(1) United States government Treasury bills, Treasury notes, Treasury bonds;
(2) issues of United States government agencies and instrumentalities as quoted by a
recognized industry quotation service available to the government entity;
(3) general obligation securities of any state or local government with taxing powers which
is rated "A" or better by a national bond rating service, or revenue obligation securities of any
state or local government with taxing powers which is rated "AA" or better by a national bond
rating service;
(4) general obligation securities of a local government with taxing powers may be pledged as
collateral against funds deposited by that same local government entity;
(5) irrevocable standby letters of credit issued by Federal Home Loan Banks to a municipality
accompanied by written evidence that the bank's public debt is rated "AA" or better by Moody's
Investors Service, Inc., or Standard & Poor's Corporation; and
(6) time deposits that are fully insured by any federal agency.
    Subd. 3. Amount. The total amount of the collateral computed at its market value shall be at
least ten percent more than the amount on deposit plus accrued interest at the close of the financial
institution's banking day, except that where the collateral is irrevocable standby letters of credit
issued by Federal Home Loan Banks, the amount of collateral shall be at least equal to the amount
on deposit plus accrued interest at the close of the financial institution's banking day. The financial
institution may furnish both a surety bond and collateral aggregating the required amount.
    Subd. 4. Assignment. Any collateral pledged shall be accompanied by a written assignment
to the government entity from the financial institution. The written assignment shall recite that,
upon default, the financial institution shall release to the government entity on demand, free of
exchange or any other charges, the collateral pledged. Interest earned on assigned collateral will
be remitted to the financial institution so long as it is not in default. The government entity may
sell the collateral to recover the amount due. Any surplus from the sale of the collateral shall be
payable to the financial institution, its assigns, or both.
    Subd. 5. Withdrawal of excess collateral. A financial institution may withdraw excess
collateral or substitute other collateral after giving written notice to the governmental entity
and receiving confirmation. The authority to return any delivered and assigned collateral rests
with the government entity.
    Subd. 6. Default. For purposes of this section, default on the part of the financial institution
includes, but is not limited to, failure to make interest payments when due, failure to promptly
deliver upon demand all money on deposit, less any early withdrawal penalty that may be required
in connection with the withdrawal of a time deposit, or closure of the depository. If a financial
institution closes, all deposits shall be immediately due and payable. It shall not be a default under
this subdivision to require prior notice of withdrawal if such notice is required as a condition of
withdrawal by applicable federal law or regulation.
    Subd. 7. Safekeeping. All collateral shall be placed in safekeeping in a restricted account
at a Federal Reserve bank, or in an account at a trust department of a commercial bank or other
financial institution that is not owned or controlled by the financial institution furnishing the
collateral. The selection shall be approved by the government entity.
History: 1996 c 399 art 1 s 4; 2003 c 51 s 15,16; 2004 c 151 s 1,2; 2004 c 174 s 2; 2007 c
44 s 7; 2007 c 57 art 3 s 39

NOTE: The amendments made to subdivisions 1 and 3 by Laws 2004, chapter 151, sections
1 and 2, are effective retroactively from the beginning of a government entity's fiscal year 2003
and apply to each fiscal year thereafter. Laws 2004, chapter 151, section 3.