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No FDIC insurance for charter bank a grave concern

Senators have again voiced concern over the lack of insurance for deposits at the American Samoa Government-owned charter bank, which is not FDIC (Federal Deposit Insurance Corporation) insured, and set to open in September this year.


The concerns were raised at last Wednesday’s Senate Government Operations Committee confirmation hearing for board members of the new government entity, the Territorial Bancorp Holding Company, that will manage and govern the Territorial Bank of American Samoa (TBAS).


The governor nominated Papali’i Lauli’i Alofa and Salaia Gabbard for four years; Steven Watson, Alo Dr. Paul Stevenson and Ruth Matagi Fa’atili for three years; and, Utu Abe Malae and Keniseli Lafaele for two years. The Senate and the House have both officially confirmed all board members.


The law creating the ASG owned bank states in part that the bank will be managed by the Holding Company, to be overseen by a seven-member board composed of four ASG representatives and three members at large. All board members are to be appointed by the governor and confirmed by the Fono.


Yesterday was the final day of the 3rd Regulation Session of the 34th Legislature and unless the governor calls a special session, lawmakers will return in mid July for the 4th session.




As previously reported by Samoa News, the new charter bank — which is modeled after the one in the state of North Dakota— is not FDIC insured when it comes to customers’ deposits. This has raised concerns from not only lawmakers, but from community members too.


During last Wednesday’s confirmation hearing, the insurance issue was once again raised by Sen. Tuaolo Manaia Fruean, who asked about the amount of money needed to set up the bank and whether or not it’s FDIC insured.


Utu explained that the “initial capital” is $10 million (which is funded by proceeds from the Series B bonds) and this capital is an estimate based on a similar charter bank in North Dakota, which is the only other charter bank in the US.


He said the $10 million is just the “minimum amount to start” —but a bill already enacted into law requires that all government entities deposit into the new bank, which would help increase the bank’s “working capital”.


Papali’i added that as a charter bank, it’s set up with an initial investment by the government and then the government deposits into it, so it will grow. 


Regarding the FDIC issue, Utu said the ASG bank is not covered under FDIC but the plan is that — after a few years in operation — TBAS will apply to FDIC. Papali’i added that the board would look at a company to cover the deposits and address concerns of the bank not being FDIC insured.


However, Tuaolo said the lack of insurance is a serious matter when it comes to people’s deposits and this issue cannot be ignored for too long.


Utu pointed out that the Office of Financial Institution (OFI), which is set up by law, would review, monitor, regulate and take necessary action, when required, against the bank. (Samoa News notes that OFI is also the regulator of all banks and money transfer services in the territory.)


“But in the short run” the aim is to become an FDIC member, he said, adding that being insured by FDIC will take a little time.


Tuaolo went on to point to a provision of the law which created TBAS that states in part that “debts and obligations of the bank are not the debts or obligations of the American Samoa government.”


He said this is concerning for the fact that this is an ASG entity yet the government will not be responsible for any debts.


Papali’i said he believes the bank’s liabilities are the responsibility of the board and those working at the bank. He also noted another provision of the law, which states in part that the “bank can sue and be sued”.


Senate committee chairman Sen. Galeai Tu’ufuli asked, “If the government is not responsible, then who is?” He said there is nothing in the law dealing with the bank’s indebtedness. Additionally, there is no requirement in the law for board members to be bonded, or for board members’ bonds to be responsible for any bank indebtedness.


“Do board members object if we require them to be bonded?” Galeai asked, and both Papali’i and Utu said “no” as they both believe it’s something that should be done. Additionally, polices of the bank require officers and directors to be bonded — under the “directors and officers liability insurance” (often called D&O).


Galeai responded that policies are something that can be erased tomorrow, but not the law, and it’s best that this be done through appropriate legislation.


Papali’i also said that he believes that this is something that should be done, and he will leave it up to the Senate to make the appropriate amendments to the law.


Sen. Magalei Logovi’i said the biggest concern with the new bank is the lack of insurance, adding that it’s easy for people to make statements to the Senate but when something happens and there is no insurance, the public will blame the Fono.


He says the concerns are for low income people who make deposits with the bank, trusting that his or her money is safe — but if the bank is robbed tonight, then there’s that “big problem” with no bank insurance.


Another problem, says Magalei, is that the law is in place requiring all government accounts to be deposited in the charter bank, which means there is one basket to hold all the eggs. And if something happens — to the basket — and all the eggs are cracked, then there is a big problem with government money.


Magalei asked the board to look into the issues of getting the bank FDIC insured, adding that the board is being given the full trust of the public with their money when banking at TBAS.


Tuaolo asked if there is a federal requirement in which all federal monies awarded to ASG must be deposited in an insured bank, to which Utu responded that he is not aware of such a requirement, but will consult with off-island attorneys about the matter.


Utu said the only time that something like that is required, is for the performance bond posted by contractors for federally funded projects.


Two other senators also voiced concerns over the lack of insurance for the bank and also urged the board to look at this important issue.


At the end of the hearing, Papali’i said that he believes the major concern raised by senators is “security” of the bank’s deposits. And if the Senate sees the need to pass legislation to ensure security of the bank, that will be greatly appreciated by the board, which will also look into the same issues, he said.