This chapter prescribes depositary requirements for securing federal agency funds on deposit.

When a federal agency places funds on deposit with a financial institution, the financial institution must pledge collateral under conditions described in this chapter. The pledging of collateral by a financial institution is necessary to protect the federal government against risk of loss. State, local, and municipal deposits are not covered under this chapter.

See, inter alia, 12 U.S.C. 90, 265, 266, and 1789a; 31 U.S.C. 321 and 3303; and 31 CFR 202 and 380.

For terms and definitions related to this chapter, please view the TFM Glossary.

Treasury’s Bureau of the Fiscal Service (Fiscal Service) promulgates rules and provides guidance for the security of public money on deposit in depositaries. The rules outlining broad policy objectives with securing such funds and related collateral guidance are referenced in 31 CFR Part 202 and 31 CFR Part 380. The TFM provides more detailed policy guidance and detailed procedures that agencies, depositaries, and FRBs must follow to ensure the funds are secured. Each agency must remain informed of and compliant with the latest collateral regulations, rules, and procedures.

Fiscal Service determines the types of acceptable collateral depositaries can use to secure deposits of public money. Fiscal Service also determines appropriate margins on pledged collateral.

The following subsections outline the distribution of responsibilities for securing deposits of public money.

1025.10—Depositaries

Depositaries must:

1025.20—FRBs

All FRBs must secure pledged collateral to protect public funds.

1025.30—TCMM Operations Team

The TCMM Operations Team must:

1025.40—Agencies

Each agency must:

1025.50—Fiscal Service

The role of Fiscal Service is to:

To accept deposits of public money, a financial institution must be designated by Treasury as a depositary and financial agent of the federal government under 31 CFR Part 202. Before accepting deposits in excess of the recognized insurance coverage, each depositary must complete FS Form 5902 and FS Form 5903.

When a financial institution contacts the TCMM Operations Team about pledging collateral to secure agency deposits, the TCMM Operations Team ensures it has a completed FS Form 5902 and FS Form 5903 on file from the financial institution. If it does not, the TCMM Operations Team sends those forms to the financial institution along with a cover letter and a copy of 31 CFR 202 and 380.

The financial institution must complete and return the forms to the TCMM Operations Team before a collateral account is established or securities are deposited. The depositary should not hold any funds not protected by recognized insurance coverage or collateral pledged as a surety. The TCMM Operations Team maintains all pledging documentation. This includes the FS Form 5902 and FS Form 5903 and any other pertinent collateral transaction documents.

Unless otherwise specified by the Secretary of the Treasury, depositaries may pledge collateral in the form of transferable securities of any of the acceptable classes as noted in Fiscal Service guidance. The FRB accepts collateral at values (mark to market) it assigns. See the TreasuryDirect website.

Securities not negotiable without endorsement or assignment are acceptable if the depositary either places its unqualified endorsement on each security or furnishes an appropriate resolution and irrevocable power of attorney authorizing the FRB to assign the securities.

If an agency expects its account balance to exceed the recognized deposit insurance limit, it must set the new amount to be collateralized in TCMM system to ensure effective monitoring of collateral. As long as a depositary supplies the V account number and has completed FS Form 5902 and FS Form 5903, the TCMM Operations Team must accept the pledge of acceptable collateral.

When the TCMM Operations Team receives pledging instructions from the depositary, it must determine if the agency has been assigned a V account number. If not, the TCMM Operations Team must advise the agency to contact Fiscal Service for an account number assignment. If the depositary has not previously pledged securities to an agency, it must complete the FS Form 5902 and FS Form 5903. The TCMM Operations Team sends these forms to the depositary (see Section 1030). The TCMM Operations Team also determines if the securities pledged are acceptable as collateral (see Section 1035). All district FRBs deposit the securities into the depositary’s safekeeping account pledged to the agency.

The FRB may receive a deposit of securities from an off-line depositary without prior receipt instructions. In this case, the securities operations staff at the district FRB should not reverse the deposit automatically but should contact the depositary to determine the proper disposition of the deposit of securities.

A depositary must pledge all collateral to a specific agency V account. If a depositary pledges collateral in excess of the requested amount, the entire pledge is applied to the indicated agency account. For example, Agency “X” requests a pledge of $103,000. The depositary chooses to pledge $105,000 because of the profile of its securities portfolio. Agency “X” is credited with the entire $105,000 pledge, not just the $103,000 requested. The depositary may not pledge the excess $2,000 to agency “Y”. The depositary must pledge additional, separate securities to satisfy agency “Y’s” collateral requirement.

The TCMM Operations Team monitors agency V accounts to identify maturing securities. Because most of the pledged securities are made in book-entry form, the FRB must have procedures in place to prevent under-collateralization of the agency account. This could result from either the redemption or payment of pledged securities. In this case, the FRB sends a report notifying each depositary of its upcoming maturing securities. Depending on the circumstances, the TCMM Operations Team must take the actions discussed below.

1050.10—Substitution Required

If the TCMM Operations Team determines that a depositary’s collateral account must remain at the current level, the FRB contacts the depositary at least 10 business days before the maturity date of the current pledged securities. The FRB report instructs the depositary in substituting collateral. If the depositary does not substitute new collateral one business day before the maturation/redemption date, the TCMM Operations Team calls the depositary to discuss the need for additional collateral or the withholding of proceeds.

1050.20—Substitution Not Required

If the collateral amount can be reduced without under-collateralizing the V account, the TCMM Operations Team releases the collateral.

1050.30—Substitution Required but Not Received

Book-entry securities must be redeemed and paid on their maturity date. However, the TCMM Operations Team withholds payment if it does not receive a collateral substitution from a depositary on time. The TCMM Operations Team holds redemption proceeds in a general ledger account until the depositary deposits substitute collateral into the account pledged to the agency, or until the agency lowers the amount to be collateralized.

It is important that agency and TCMM Operations Team collateral records correctly reflect the outcome of depositary mergers. This ensures that collateral deficiencies do not develop. When an agency maintains accounts with two depositaries, each account is separately insured by recognized deposit insurance. If two depositaries serving the same agency merge, the surviving depositary may need to pledge additional collateral to replace the insurance coverage lost because of the merger.

TCMM Operations Team provides the FRB Security Account Holdings Report and the Collateral Monitoring Recap Report monthly. Agencies and depositaries use these reports to ensure that their deposits are adequately protected and to evaluate whether any changes are needed to their amounts to be collateralized.

If a depositary that has pledged collateral to an agency becomes insolvent, the TCMM Operations Team should refer to Volume II, Part 8, Chapter 3000, for guidance. Neither the TCMM Operations Team nor the agency can authorize the release of collateral in the event of a depositary’s insolvency. Only Fiscal Service can instruct the TCMM Operations Team to release collateral held under 31 CFR 202 for an insolvent depositary.

Direct inquiries concerning this chapter to:

Department of the Treasury 
Bureau of the Fiscal Service 
Bank Policy and Oversight Division

202-874-8471 
BMT@fiscal.treasury.gov

Contact the TCMM Operations Team at:

TCMM Treasury Support Center 
Federal Reserve Bank of St. Louis

888-568-7343, option 2 
866-707-6574

For information describing acceptable collateral and its valuation, see the TreasuryDirect website.

For information on collateral policy, see the Treasury Collateral Management and Monitoring website.