Criteria for selection of financial intermediaries. Although the City's policies for the purchase of investment securities
are designed to ensure complete safety, accompanied by appropriate
liquidity and competitive yields, the "providers" of such securities
must also meet specific financial and operational standards.
Deposits in commercial banks and savings and loan associations,
whether they be time deposits, demand deposits, or deposits in special
interest-bearing accounts, ("NOW", "Super-NOW", etc.), shall only
be made in banks which qualify to accept public-sector deposits which
are protected under the terms of Chapter 110, RSMo.
However, certain "sweep" or "automatic repo" accounts, and certain
funds held under the terms of a "trust agreement" arrangement may
not be protected under the provisions of Chapter 110, RSMo.
Furthermore, the City has no desire to "test" such program as
FDIC or FSLIC insurance, nor does it wish to have to establish its
legal right to securities held by financially-insolvent brokers or
securities dealers. There are a sufficiently large number of financial
institutions and securities dealers which are of impeccable financial
standing. As a result, the City does not choose to do business with
"marginal" or financially-weak institutions.
Therefor, financial intermediaries which conduct business with
the City of Excelsior Springs shall be subject to the following types
of selection criteria:
a. Commercial banks. Deposits of City monies in commercial
banks may only be made with institutions which possess the overall
financial strength, capitalization, and liquidity to reasonably ensure
the safety and availability of such monies. To assess the overall
financial strength of potential depositories, the City will utilize
third-party rating agencies to perform periodic reviews of various
commercial banks, relying upon their reports to determine the appropriateness
of the depository.
Currently, the City uses the services of Prudent Man Analysis,
Inc. (PMA) to rate the strength of the commercial banks with which
the City does business. Inasmuch as PMA utilizes overall ratings of
one (1) through five (5), (one (1) being strongest. five (5) being
weakest), the City's current policy is to seek depositories with a
PMA rating of one (1) or two (2). Banks with ratings of three (3)
shall be eligible to serve as a depository, but must be periodically
and substantively reviewed. Banks rated in the four (4) or five (5)
category will not qualify to receive City monies.
b. Savings and loan associations. Deposits of City
monies in savings and loan associations shall be subject to the same
rating criteria which are applied to commercial banks. Their acceptability
as depositories will be judged on the third-party ratings of such
organizations as PMA or its counterparts.
c. Securities dealers. There are currently thirty-six
(36) major investment banking firms which are listed by the market
Reports Division of the Federal Reserve Bank of New York as the thirty-six
(36) "primary" securities dealers. These dealers are unique within
the United States government securities industry in that they both
"report" and are "regulated" in an industry which is typically "non-reporting"
and "unregulated".
Included on this "blue chip" list are major securities firms
(Prudential-Bache, Dean Witter Reynolds, Merrill Lynch, Smith Barney,
etc.) and some of the world's largest banks (Bank of America, Citibank,
Manufacturers Hanover, Northern Trust, etc.).
Current Department of Finance policy is to restrict transactions
relating to the purchase and sale of U.S. Government securities to
this list of "primary" securities dealers. Such policy, therefor,
will preclude the City from doing business with other brokers and
dealers whose financial strength and operational capabilities cannot
be confidently determined, given the absence of "reporting" and "regulation"
requirements.
This policy may seem unduly restrictive. However, the City policy
is to "err on the side of prudence", rather than accept event the
smallest risk of loss of principal or interest.