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Elk River Municipal Utilities <br />Elk River, Minnesota <br />Notes to the Financial Statements <br />December 31, 2019 <br />Note 2:Detailed Notes on All Funds <br />A.Deposits and Investments <br />Custodial credit risk for deposits and investments is the risk that in the event of a bank failure, the Utilities’ deposits and <br />investments may not be returned or the Utilitieswill not be able to recover collateral securities in the possession of an <br />outside party.In accordance with Minnesota statutes and as authorized by the Commission, the Utilitiesmaintains <br />deposits at those depository banks, all of which are members of theFederal Reserve System. <br />Minnesota statutes require that all Utilities deposits be protected by insurance, surety bond or collateral. The market value <br />of collateral pledged must equal 110 percent of the deposits not covered by insurance or bonds, withtheexception of <br />irrevocable standby letters of credit issued by Federal Home Loan Banks as this type of collateral only requires collateral <br />pledged equal to 100 percent of the deposits not covered by insurance or bonds. <br />Authorized collateral in lieu of a corporate surety bond includes: <br />United States government Treasury bills, Treasury notes, Treasury bonds; <br />Issues of United States government agencies and instrumentalities as quoted by a recognized industry quotation <br />service available to the government entity; <br />General obligation securities of any state or local government with taxing powers which is rated “A” or better by a <br />national bond rating service, or revenue obligation securities of any state or local government with taxing powers <br />which is rated “AA” or better by a national bond rating service; <br />General obligation securities of a local government with taxing powers may be pledged as collateral against funds <br />deposited by that same local government entity; <br />Irrevocable standby letters of credit issued by Federal Home Loan Banks to a municipality accompanied by <br />written evidence that the bank’s public debt is rated “AA” or better by Moody’s Investors Service, Inc., or Standard <br />& Poor’s Corporation; and <br />Time deposits that are fully insured by any federal agency. <br />Minnesota statutes require that all collateral shall be placed in safekeeping in a restricted account at a Federal Reserve <br />Bank, or in an account at a trust department of a commercial bank or other financial institution that is not owned or <br />controlled by the financial institution furnishing the collateral. The selection should be approved by the government entity. <br />At December 31, 2019, the Utilities’ carrying amount of deposits was $20,042,093and the bank balance was <br />$20,029,187. Of the bank balance $350,111was covered by federal depository insurance, and the remaining balance was <br />covered by collateral held by the pledging financial institution’s agent in the Utilities’ name. <br />34 <br />124 <br />