Instructions for

## Acceptance of Bonds Secured By Government Obligations in Lieu of Bonds With Sureties

These instructions describe requirements for Government agencies
accepting bonds secured by Government obligations in lieu of bonds with
sureties.

**Introduction**

Persons (obligors) required by Federal law or regulation to give an
agency a bond with surety or sureties may give in lieu thereof to a bond
official any security acceptable under 31 U.S.C. 9301, as amended. The
Secretary of the Treasury designates classes of Government obligations
acceptable under this part.

Obligors or a depositary acting as an agent for the obligor must pledge
acceptable collateral as required by bond officials. Federal Reserve
Banks (FRBs) act as custodian and must secure and monitor pledged
collateral.

**Authority**

The Department of the Treasury (Treasury) issues these procedures under
Title 31 of the Code of Federal Regulations (CFR), Parts 225 (Acceptance
of Bonds Secured By Government Obligations in Lieu of Bonds With
Sureties) and 380 (Collateral Acceptability and Valuation). These
regulations govern:

-   Custodial duties.

-   Pledging of government obligations in lieu of sureties.

-   Bond official duties.

-   The acceptability and valuation of collateral pledged to secure
    obligations to the U.S. Government and other financial interests of
    the U.S. Government.

31 CFR Part 225 incorporates former Treasury Department Circular No.
154, July 1, 1978.

**Definition of Terms**

**Agency** -- Agency is a department, agency, or instrumentality of the
United States Government.

**Amount to be Collateralized (ATBC)** -- ATBC is the required
collateral value to be pledged by an obligor as bond to an Agency as
designated by the bond official on an ATBC Change Form submitted to the
National Customer Service Area (NCSA).

**Authenticate instructions** -- Authenticate instructions means to
verify that the instructions received are from a bond official or a
designee authorized by the bond official listed on the Bond Official
Collateral Contact Information Form.

**Bond** -- Bond means an executed written instrument, which guarantees
the fulfillment of an obligation to the United States and sets forth the
terms, conditions, and stipulations of the obligation.

**Bond Official** -- Bond official means an agency official having
authority under Federal law or regulation to approve a bond with surety
or sureties and to approve a bond secured by Government obligations. The
bond official is required to execute and submit to the NCSA the Bond
Official Collateral Contact Information Form. The bond official, or a
designee authorized by the bond official named on the Bond Official
Collateral Contact Information Form, must instruct the NCSA regarding
transfers, releases, and substitutions of collateral except as permitted
by the ATBC Change Form and these instructions.

**Collateral Management Systems** **(CMS)**-- The Federal Reserve System
(FRS) uses this client-server application to store and maintain
information about definitive securities and other collateral not held in
Fedwire Securities book-entry form.

**Custodian** -- Custodian means a FRB or an entity within the United
States designated by such FRB under terms and conditions prescribed by
such FRB, a depositary specifically designated by the Secretary of the
Treasury for purposes of this part, or such other entities as the
Secretary of the Treasury may designate for purposes of this part.

**Depositary** -- Depositary includes, but is not limited to:

-   Any insured bank as defined in section 3 of the Federal Deposit
    Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make
    application to become an insured bank under section 5 of such Act
    (12 U.S.C. 1815);

-   Any mutual savings bank as defined in section 3 of the Federal
    Deposit Insurance Act (12 U.S.C. 1813) or any bank which is eligible
    to make application to become an insured bank under section 5 of
    such Act (12 U.S.C. 1815);

-   Any savings bank as defined in section 3 of the Federal Deposit
    Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make
    application to become an insured bank under section 5 of such Act
    (12 U.S.C. 1815);

-   Any insured credit union as defined in section 101 of the Federal
    Credit Union Act (12 U.S.C. 1752) or any credit union which is
    eligible to make application to become an insured credit union under
    section 201 of such Act (12 U.S.C. 1781);

-   Any savings association as defined in section 3 of the Federal
    Deposit Insurance Act (12 U.S.C. 1813) which is an insured
    depository institution (as defined in such Act) (12 U.S.C. 1811 et
    seq.) or is eligible to apply to become an insured depository
    institution under the Federal Deposit Insurance Act (12 U.S.C. 1811
    et seq.); and

-   Any agency or branch of a foreign bank as defined in section 1(b) of
    the International Banking Act, as amended (12 U.S.C. 3101).

**Federal Reserve** -- Federal Reserve means a Federal Reserve Bank
(FRB) and its branches.

**Government Obligation** -- Government obligation means a public debt
obligation of the United

States Government and an obligation whose principal and interest is
unconditionally guaranteed by the United States Government.

**National Book Entry System (NBES)** -- NBES is a centralized FRS
application that facilitates the transfer of Fedwire book-entry
securities. The application also stores and maintains relevant
information about those securities.

**National Customer Service Area (NCSA)** -- NCSA is the office at the
FRB of St. Louis that monitors collateral pledged to secure public
monies and obligations to the U.S. Government and operates as a call
center to handle agency and other customer inquiries.

**Obligor** -- Obligor includes, but is not limited to, an individual, a
trust, an estate, a partnership, a corporation, and a sole proprietor.

**Person** -- Person means an individual, a trust, an estate, a
partnership, and a corporation.

**Pledge** -- Pledge means a transfer of security interest in a
Government obligation to a bond official\'s agency as collateral in lieu
of a bond with a surety or sureties.

**Pledgee/Pledgor Monthly Collateral Holdings Report** **(Holdings
Report)** -- The NCSA provides this monthly report to bond officials to
document Government obligations (collateral) held by bond officials
securing bonds from obligors. This report is also provided to obligors
documenting Government obligations (collateral) pledged by obligors to
bond officials to secure a bond.

**Pledgee/Pledgor Monthly Collateral Monitoring Recap Report** **(Recap
Report)** -- The NCSA provides this monthly report to bond officials
summarizing the balance and corresponding collateral value of Government
obligations (collateral) held by bond officials throughout the month.
This report is also provided to obligors summarizing balance and
corresponding value of Government obligations (collateral) pledged to
bond officials to secure a bond.

**Secretary** -- Secretary means the Secretary of the Treasury

**Treasury Investment Program (TIP) --** The FRS uses this centralized
application to receive tax collection information, invest funds and
monitor collateral pledged to secure public money and obligations to the
United States on behalf of Treasury.

**Responsibilities**

Treasury\'s Financial Management Service (FMS) promulgates rules and
provides guidance for the acceptance of bonds secured by Government
obligations in lieu of bonds with sureties. 31 CFR Part 225 and its
associated collateral releases and instructions offer broad policy
guidance and detailed procedures. Each Federal agency must maintain all
collateral releases, related materials and instructions.

Treasury's Bureau of the Public Debt (BPD) determines the acceptability
and valuation of collateral pledged to secure deposits of public monies
and other financial interests of the U.S. Government. See BPD's website
at [www.publicdebt.gov](http://www.publicdebt.gov/) for a list of
acceptable collateral.

Each bond official must:

-   Ensure that the bond is secured by acceptable collateral and handled
    in accordance with 31 CFR Parts 225 and 380.

-   Ensure that the par value of collateral sufficiently covers the
    amount of the bond at all times.

-   Provide NCSA with current amount to be collateralized amounts by
    submitting an Amount to be Collateralized Change Form.

-   Maintain and monitor agency collateral records by reviewing monthly
    Recap and Holdings Reports.

-   Provide NCSA with instructions for opening a new account for an
    obligor.

-   Complete the Bond Official Collateral Contact Information Form
    listing bond officials, etc. and provide it to NCSA.

-   Notify NCSA immediately when bond officials change by submitting an
    updated Bond Official Collateral Contact Information Form.

-   Provide timely address changes to NCSA.

-   Notify NCSA in writing of an obligor's default.

All FRBs must:

-   Secure/safekeep pledged collateral to protect public funds and
    obligations to the U.S. Government.

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-   Provide each bond official and obligor (or depositary) with an NBES
    Activity Statement when there is a change in the collateral account.

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-   Open collateral accounts in NBES.

-   Value collateral at par.

The NCSA must:

-   Authenticate instructions received from a bond official and act in
    accordance with such authenticated instructions.

-   Ensure that pledged collateral is eligible and sufficient to cover
    the amount on the Amount to be Collateralized Change Form

-   Notify the bond official if ineligible securities are being pledged.
    Periodically review the list of ineligible securities.

-   Maintain a current list of bond officials and obligors.

-   Provide each bond official and obligor (or depositary) with a
    monthly Recap Report and a monthly Holdings Report.

Financial institutions must:

-   Pledge sufficient eligible collateral security as required by the
    Secretary.

-   Provide bond officials and FRBs with requested information.

FMS must:

-   Establish collateral policy (except acceptability and valuation).

BPD must:

-   Establish and maintain lists of acceptable collateral and its
    required valuation. (For current guidance see BPD's website at
    [www.publicdebt.treas.gov](http://www.publicdebt.gov/) or the FRB's
    Financial Services website at
    [www.frbservices.org](http://www.frbservices.org/).)

**Establishing Accounts**

Each bond official must have a collateral account established at a FRB.
In addition, each obligor (or depositary) must have a collateral account
established at a FRB.

The bond official provides the NCSA with information regarding the
agency to open the agency account.

The bond official provides instructions to the NCSA to open an account
for an obligor (or depositary). The bond official provides the NCSA with
the obligor's (or depositary's) name and contact information and any
additional information they may have regarding the obligor. The NCSA
will then contact the obligor (or depositary) to establish an account.

The bond official also provides the NCSA with the amount to be
collateralized. The bond official provides this information on the
Amount to be Collateralized Change Form. In addition to providing the
amount of collateral that must be pledged to fully secure the bond, the
bond official will authorize the NCSA to release collateral in excess of
the amount to be collateralized without instructions from the bond
official. The bond official relieves the NCSA from any liability for
acting on the bond official's instructions and each of the FRBs from
liability for acting on instructions from the bond official.

**Securing Bonds with Government obligations (Collateral).** When an
obligor (or depositary acting as an agent for the obligor) must provide
an agency with a bond and chooses to secure this bond with collateral,
the obligor (or depositary acting as an agent for the obligor) must
pledge an acceptable security as required by statute. The bond official
must ensure that the collateral is acceptable according to the list of
\"Acceptable Collateral for Pledging to Federal Agencies" under 31 CFR
Parts 225 and 380. (See
[www.publicdebt.treas.gov](http://www.publicdebt.treas.gov/) for current
guidance for this program.)

**Pledging Collateral**

**Requesting Additional Collateral.** The NCSA ensures that sufficient
collateral has been pledged to cover the bond amount listed on the
Amount to be Collateralized Change Form. When additional collateral is
required to secure deposits of the U.S. Trustees, the NCSA will request
that the depositary pledge additional acceptable collateral. For all
other obligor collateral accounts, NCSA will contact the bond official
for additional collateral. The bond official should review the monthly
Recap Report and the monthly Holdings Report to ensure that the amount
to be collateralized is sufficient to cover the obligation to the U.S.
Government. The bond official must notify NCSA of changes to the amount
to be collateralized on the Amount to be Collateralized Change Form. The
bond official will request the obligors to pledge additional acceptable
collateral. To avoid frequent substitutions, the bond official may
reject government obligations which mature or are redeemable, with one
year from the date they are pledged to bond official. If requested by
the bond official, the NCSA will contact the depositary, or the obligor,
to request additional acceptable collateral.

If substitutions have not been made and obligations mature, the proceeds
will not be released until a new obligation is received. However, the
proceeds (cash) should not be held for extended periods of time.

**Releasing Collateral**

**NCSA's Responsibilities.** The NCSA approves the release of collateral
that the bond official has authorized on the ATBC Change Form. If an
obligor (or depositary acting as an agent for the obligor) requests the
release of collateral causing a deficiency, the NCSA will contact the
bond official to determine the exact amount to be collateralized.

**Bond Official Responsibilities.** NCSA will contact bond officials if
it determines a collateral deficiency would result from a collateral
release. Bond officials must confirm the amount to be collateralized. If
a bond official wishes to close an account, it must notify NCSA in
writing that the account balance is zero, collateral is no longer
needed, and the account should be closed.

**Verifying Collateral Amounts.** Bond officials should verify that the
monthly Recap Report accurately reflects the amounts to be
collateralized.

# Defaults /Insolvencies

If an obligor (or depositary) defaults on a bond due to insolvency or
any other condition, the bond official must immediately contact FMS and
provide written notification to the NCSA. FMS will guide bond officials
in the disposition of the collateral pledged by the obligor (or
depositary). The NCSA will handle the liquidation of the collateral
based on written authenticated instructions received from the bond
official and approved by FMS. The proceeds of pledged collateral will be
applied to satisfy any claim of the United States against the obligor
(or depositary).

**Contacts**

Direct inquiries:

Concerning this chapter (except for acceptability and valuation issues),
to:

> Electronic Banking Services Division
>
> Financial Management Service
>
> Department of the Treasury
>
> 401 14th Street, S.W., Room 318
>
> Washington, D.C. 20227
>
> Telephone: 202-874-6580

For information on collateral policy, see FMS' website
([www.fms.treas.gov/collateral](http://www.fms.treas.gov/collateral)).

Concerning acceptable collateral and its valuation, to:

Government Securities Regulations Staff

Bureau of the Public Debt

Department of the Treasury

999 E Street, N.W., Room 315

Washington, D.C. 20239

Telephone: 202-691-3632

For information describing acceptable collateral and its valuation, see
BPD's website ([www.publicdebt.treas.gov](http://www.publicdebt.gov/)).