Missouri law is clear that banks must pledge securities to collateralize all public deposits to the extent the deposit is not covered by FDIC insurance. Less clear, however, is what type of legal interest the city must have in pledged securities. Section 110.010.2 RSMo. allows a party other than the city to hold securities as collateral for city deposits. Under this law, there are only two permissible options when a third party holds securities as collateral for the city: 1. A bank holds securities in the city’s name, or 2. A trustee holds securities in the city’s name. In both options, the city’s name must be on the securities, including on uncertificated securities. A few basic best practices to remember include:
1. Have a policy requiring contracts with all financial institutions. Such contracts will help ensure that the city complies with and can enforce Missouri laws securing the deposit of public funds.
2. Select a bank or trustee that has an office in Missouri. This will make enforcement easier if the city must take legal action to liquidate securities held as collateral.
3. Collateral securities may not be held in a brokerage account, even if the account is titled in the city’s name.