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Senate grapples with requirements for TBAS to meet FDIC rules

AG Fainuulelei Falefatu Alailima-Utu and Sen Togiola Tulafono
andrew@samoanews.com

Pago Pago, AMERICAN SAMOA — The Senate passed in third reading last week an administration bill which amends the government deposit requirements to meet the Federal Deposit Insurance Corporation (FDIC) regulatory rules for deposit of all government funds.

The final vote was 13-1.

The amendment takes away the opening phrase “Without exception” and replaces it with the phrase, “unless otherwise specifically prohibited by federal statute or regulation or as directed by order of the courts of this or any other state or territory, or of the United States,” all government funds and deposits, including those earned or received by semi-autonomous agencies shall be deposited in the Territorial Bank of American Samoa (TBAS).

The bill’s preamble states that currently under local law, it is required “without exception” that all government funds and deposits, including those received by semi-autonomous agencies be deposited and maintained at TBAS.

However, the federal government requires that certain award funds received by the American Samoa Government and its semi-autonomous agencies must be deposited in accounts insured by FDIC.

Moreover, FDIC has indicated that under its statutory and regulatory rules, it is unable to insure the accounts of TBAS making ASG unable to comply with both federal rules and local law, necessitating the amendment.

Attorney General Fainuulelei Falefatu Alailima-Utu and the Governor’s Office Chief Legal Counsel Kristi Thanxton testified on the bill in a hearing of the Senate Government Operations Committee chaired by Senator Togiola T.A. Tulafono before the bill’s third reading.

In his opening remarks, AG Fainuulelei stated that the proposed bill aims to satisfy the federal requirements especially regarding federal grant funds and at the same time, assist in the development of TBAS as a sound and safe financial institution.

He explained that if Treasury tries to secure by direct draw down federal grant funds through TBAS, the transaction is denied because TBAS is not FDIC insured.

So the funds are deposited in an account at a FDIC-insured bank like Zion Bank, before they are transferred to TBAS.

Senator Togiola asked if funds from federal grantors are initially deposited in FDIC-insured financial institutions and then ASG draws down those funds and deposits them in TBAS, why is there a need to change the law.

He also pointed out that FDIC insurance only covers up to $250,000 so he doesn’t see any reason why TBAS should seek insurance when the current practice was serving its purpose.

Fainuulelei explained that government is faced with criticism as to why the federal grant funds are not directly deposited at TBAS.

He emphasized that TBAS must be insured in order to safeguard not only these funds and all government funds, but also the public who bank there.

He pointed out that the amount of funds in TBAS accounts now total more than $300 million and government should not carry this huge potential liability, which is why it is imperative that TBAS gets FDIC insured.

He stated that if TBAS encounters any kind of economic disruption which may trigger a collapse like what happened last year in the mainland west coast, government will not be able to rescue or provide bail out funds because government local funds are not sufficient.

Senate President Tuaolo Manaia Fruean asked if another insurance institution apart from FDIC can insure TBAS.

The AG replied that they have to seek the advice of the federal grantors as required by federal regulations and ascertain which insurance institution they recommend.

However, he stated that federal grantors have full confidence and trust in FDIC.

“So what are you doing so that we can be FDIC insured?” Tuaolo asked.

Fainuulelei explained that the FDIC’s stance in the matter requires that TBAS must have a private majority ownership.

Tuaolo argued that the opportunity had already been given to private investors but none has stepped forward so the government has had to step up.

Fainuulelei explained that TBAS was established during Governor Lolo’s administration as a government financial institution with the vision of gradually becoming privately owned.