The pooled collateral legislation authorizes the Comptroller to assess penalties on a participating depository institution to enforce compliance with the program rules. There are three violations that may be penalized:
- late reports;
- under collateralization of public funds; and
- late payment of annual assessment.
The Comptroller may assess a penalty if any reports required to be submitted by participating depository institutions are not submitted by the prescribed deadline. Instructions and deadlines for the reports will be provided by the Comptroller on the program Web site. There are four types of reports required by the program rules:
- Daily Report - the prior business day's aggregate ledger balance of deposits of local public funds.
- Weekly Summary Report - the total par and market value of collateral held by a custodian trustee on its behalf.
- Monthly Report - the collateral instruments held by a custodian trustee on behalf of the participating depository institution, together with the par and market value of the securities.
- Annual Reporting – appropriate annual reports as required by the Comptroller, including annual report and financial statements.
All of these reports will be in electronic form, and will be submitted either by direct file transfer or by entering the information on the program Web site.
Under Collateralization of Funds
The Comptroller may also impose a penalty against a participating depository institution that does not maintain acceptable collateral in an amount required by the program rules. The Comptroller is required to first issue a notice to the participating depository institution that it appears to be in violation of the program collateral requirements. If the collateral violation has not been corrected by the third business day after issuance of the notification, the Comptroller may then assess a penalty.
Late Payment of Annual Assessment
The Comptroller is required by law to charge an annual assessment against each participating depository institution to recover the costs of administering the pooled collateral program. The participating depository institution is then required to remit payment for the assessment within 45 days after receiving the notification. The Comptroller may impose a penalty on the depository institution if the payment is late.
According to the state law that established the pooled collateral program, the formula for determining the amounts of penalties for a participating depository institution violation shall be based on the following factors:
- average weekly deposits,
- average asset base,
- number of previous violations, and
- number of days of a continuing violation.
The law also requires the penalty amount to be at least $100 per calendar day and it cannot exceed $1,000 per calendar day.
Base Penalty Amount
The Comptroller will combine the first two factors required, the average weekly deposits and average asset base, to determine the base penalty amount. The Comptroller has divided these two factors into three daily penalty amount tiers, based on the depository institution's participation in the pooled collateral program and size of the depository institution. The three daily penalty amount tiers will be $50, $100, and $150.
The Comptroller will determine the average weekly deposit factor by comparing each participating depository institution's deposits in the program to the total deposits in the program each week and expressing that number as a percent. For example, if a participating depository institution's deposits averaged $1million for the week and the total deposits in the program were $50 million, that institution's penalty factor would be 2%.
The daily dollar amounts assigned to this penalty factor are as follows:
|Average weekly deposit ‹ 5%||=||$ 50 per day penalty|
|Average weekly deposit 5% to 15%||=||$100 per day penalty|
|Average weekly deposit › 15%||=||$150 per day penalty|
The Comptroller will determine the average asset base as reported on the year end condition report submitted by the participating depository institution. The daily dollar amounts assigned to this penalty factor are as follows:
|Average asset base ‹ $500 million||=||$ 50 per day penalty|
|Average asset base $500 million to $2.5 billion||=||$100 per day penalty|
|Average asset base › $2.5 billion||=||$150 per day penalty|
For example, if a participating depository institution's average weekly deposit penalty factor was 2% and their average asset base was $1 billion, their base penalty would be $50 per day plus $100 per day for a total of $150 per day. Or, if a participating depository institution's average weekly deposit penalty factor was 8% and their average asset base was $4 billion, their base penalty would be $100 per day plus $150 per day for a total of $250 per day.
Additional Penalty For Continued Violation
Continued violations will result in additional penalty amounts added to the base penalty amount. These additional penalty amounts will use the final two factors in the penalty formula, the number of previous violations and the number of days of a continuing violation.
If the participating depository institution has more than one violation during the year, the base penalty will be multiplied as follows: two times for the second violation and three times for three or more violations. For example, if the participating depository institution's base penalty is $200 per day, and this is the second violation, then the total penalty will be twice the base penalty, or $400 per day. Or, if the participating depository institution is on their fourth violation with a base penalty of $150 per day, then the total penalty will be three times the base penalty, or $450 per day.
If the participating depository institution has a continuing violation after seven business days, the penalty will be increased by $100 per calendar day from the eighth business day through the fourteenth business day; and if there is a continuing violation after fourteen business days, the penalty will be increased by $200 per day. For example, if the participating depository institution has a base penalty of $200 and is in the ninth day of their violation, the penalty would increase from $200 to $300 per day on the eighth and ninth business day of the violation.
The law that established the pooled collateral program provided that the penalty amount cannot exceed $1,000 per day. If any of the penalty calculation combinations above result in a penalty amount of more than $1,000 per day, the penalty amount will automatically become $1,000 per day.