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<br />-33- <br />NOTE 2 – DEPOSITS AND INVESTMENTS (CONTINUED) <br /> <br />B. Deposits <br /> <br />In accordance with applicable Minnesota Statutes, the City maintains deposits at depository banks <br />authorized by the City Council, including checking accounts and certificates of deposit. <br /> <br />The following is considered the most significant risk associated with deposits: <br /> <br />Custodial Credit Risk – In the case of deposits, this is the risk that in the event of a failure, the <br />City’s deposits may be lost. <br /> <br />Minnesota Statutes require that all deposits be protected by federal deposit insurance, corporate surety <br />bond, or collateral. The fair value of collateral pledged must equal 110 percent of the deposits not <br />covered by federal deposit insurance or corporate surety bonds. Authorized collateral includes <br />treasury bills, notes, and bonds; issues of U.S. government agencies; general obligations rated “A” or <br />better; revenue obligations rated “AA” or better; irrevocable standard letters of credit issued by the <br />Federal Home Loan Bank; and certificates of deposit. Minnesota Statutes require that securities <br />pledged as collateral be held in safekeeping in a restricted account at the Federal Reserve Bank or in <br />an account at a trust department of a commercial bank or other financial institution that is not owned <br />or controlled by the financial institution furnishing the collateral. The City has no additional deposit <br />policies addressing custodial credit risk. <br /> <br />At year-end, the carrying amount of the City’s deposits and the bank balance was $0, with the use of a <br />depository sweep account. Any bank balance during the year was covered by federal deposit <br />insurance, surety bonds, or by collateral held by the City’s agent in the City’s name. <br /> <br />C. Investments <br /> <br />Investments are subject to various risks, the following of which are considered the most significant: <br /> <br />Custodial Credit Risk – For investments, this is the risk that in the event of a failure of the <br />counterparty to an investment transaction (typically a broker-dealer), the City would not be able to <br />recover the value of its investments or collateral securities that are in the possession of an outside <br />party. The City’s investment policies do not further address this risk, but typically limits its exposure <br />by purchasing insured or registered investments, or by the control of who holds the securities. <br /> <br />Interest Rate Risk – This is the risk of potential variability in the fair value of fixed rate investments <br />resulting from changes in interest rates (the longer the period for which an interest rate is fixed, the <br />greater the risk). The City’s investment policies do not mandate a limit on the duration of <br />investments. <br /> <br />Concentration Risk – This is the risk associated with investing a significant portion of the City’s <br />investment (considered 5.0 percent or more) in the securities of a single issuer, excluding United <br />States guaranteed investments (such as treasuries), investment pools, and mutual funds. The City’s <br />investment policies state that no more than 5.0 percent of the overall portfolio may be invested in the <br />securities of a single issuer, except for the securities of the United States government, or a maximum <br />of 25.0 percent with any individual counterparty in an external investment pool. At December 31, <br />2022, the City’s investment in Federal Home Loan Bank represented 10.5 percent of the total <br />investments of the City.