February 16, 2011
I am President of the First National Bank of Bastrop, Texas, a $340 Million community bank established in 1889. We employ 130 people making us the 5th largest private employer in our community. I appreciate being given the opportunity to comment on File No. S7-45-10 Registration of Municipal Advisors.
I am opposed to including community banks in the municipal advisor definition, subjecting us to the regulatory burden of SEC and Municipal Securities Rulemaking Board registration.
Our bank competitively bids for, and has for many years been awarded the privilege of serving as a public fund depository for not only our county but also school districts, cities, towns, villages, hospital districts, municipal utility districts, and emergency services districts in our county. By law, all funds over and above coverage by the FDIC are backed by pledged securities providing risk free checking, savings and certificates of deposit.
Keeping the funds in our community has allowed our community to grow and prosper. In addition, many of the governmental needs that come up in the communities we serve are too small to be financed by issuing bonds, which would be cost prohibitive. We have financed fire trucks, police cars, dump trucks, and hospital equipment. We have a long tradition of assisting governmental entities in our area. Over 100 years ago, we financed the first school in our community.
I believe that when the legislation was being considered, it was intended to cover unregulated financial advisors, not other entities in the municipal market that are already subject to regulation by the SEC or the bank regulators. The actual language of the statute turned out to be much broader. The SEC proposal extends registration completely beyond what was required by the statute.
The Commission should exclude from the municipal advisor definition:
1. Banks and their employees who provide advice to a municipal entity concerning transactions involving a deposit, as defined in Section 3(a)(l) of the Federal Deposit Insurance Act at an insured depository institution, as defined in Section 3(c)(2) of the Federal Deposit Insurance Act, such as insured checking and savings accounts and certificates of deposit.
2. Banks and their employees that respond to requests for proposals (RFPs) from municipal entities regarding other investment products offered by the banking entity, such as money market mutual funds or other exempt securities.
3. Banks and their employees that provide to municipal entities a listing of the options available from the bank for the short-term investment of excess cash (for example, interest-bearing bank accounts and overnight or other periodic investment sweeps) and negotiates the terms of an investment with the municipal entity.
4. Banks and their employees that provide to a municipal entity the terms upon which the bank would purchase for the banks own account (to be held to maturity) securities issued by the municipal entity, such as bond anticipation notes, tax anticipation notes, or revenue anticipation notes.
By providing a safe, affordable depository for public funds we are able to reinvest the funds back into our community. If community banks like ours are not exempted or excluded from the municipal advisor definition under the scenarios listed above, because of the regulatory burden involved, we will choose to no longer bid for public funds in our communities. The local tax dollars will flow out of our communities and the governmental entities will be faced with increased costs and fewer options.