NJDOBI E-Newsletter
The State of New Jersey
NJ Department of Banking and Insurance

Home > June 2011
 
Update on Government Unit Deposit Protection Act (GUDPA) line

The Government Unit Deposit Protection Act (“GUDPA”) was initially enacted in 1970 for the purpose of providing additional protection, over and above federal deposit insurance, to local government units such as counties, municipalities and school districts for funds deposited in participating financial institutions. Since its inception in 1970, New Jersey has never experienced a loss related to GUDPA. In Washington State, one bank’s failure in 2007-2008 forced other participating banks to pay a total of $15 million to cover the failed bank’s government deposits. 

In response to the incident in Washington State, New Jersey formed a working group to evaluate the entire New Jersey GUDPA program. The members included:

     
   

New Jersey Department of Banking & Insurance Staff and Attorneys

   

New Jersey Bankers Association

    New Jersey League of Municipalities
    Banks
    New Jersey Attorney General’s Office
    Legislators
    New Jersey Credit Union League
    New Jersey Division of Local Government Services, Department of Community Affairs


As of result of this working group, the legislation was amended during the latter portion of 2009 before it was subsequently passed by the Legislature and signed into law in January 2010, and effective July 2010. The Department published and adopted regulations, and participating banks filed reports for the three months ending September 30, 2010. The law made changes to GUDPA, supplementing Federal Deposit Insurance (FDIC) protections for governmental bank deposits should a bank holding local government unit deposits fail.

The enhancements to the GUDPA program provide:

  1. A wider safety net to reimburse local government units should one participating bank fail;
  2. Additional stability of New Jersey’s participating banks;
  3. Maintenance of the goals of the GUDPA program and enhanced risk reduction; and
  4. Substantially more collateral pledged for government unit depositor protection.


Under the new provisions, required backing for uninsured GUDPA deposits went from $2.1 billion on $14.1 billion of uninsured deposits at December 31, 2009 to $9.3 billion on $13.0 billion of uninsured deposits at September 30, 2010, an increase of 343%.

Additionally, New Jersey Department of Banking and Insurance GUDPA monitoring has been upgraded to electronic reporting, collateral and payment systems. To provide guidance to banks, the Department of Banking and Insurance and NJBankers offered a seminar in January. The program was attended by more than eighty bank financial managers. The GUDPA program is an example of banks, state legislators, regulators, banking associations and local municipalities joining together to craft solutions for the changing economic times.

Want to learn more? Visit GUDPA online or contact us: gudpa@dobi.state.nj.us

 
 
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