Scenario: A bank holds deposits for a municipality (let's say a county). The county has numerous checking accounts with the bank -- and the aggregate balance of all accounts is always positive -- but a few individual accounts have been overdrawn in excess of 60 days.

Question: Should consideration be given to charging-off the overdrawn accounts? (Based solely on the Interagency Guidance on ovedraft protection programs -- which includes a blanket statement that overdraft accounts should be charged-off after 60 days.) I'd like to believe that common sense can prevail (or maybe there is an "out" that someone can point-out for me).

I think that common sense would prevail in this case. However, you may need to research state law as I believe that a municipality overdrawing their accounts is not legal in some states.

I had a similar experience at one time.

We straightened out everything but also addressed the issue of why these accounts were overdrawn, etc. because it is not right and cannot continue.

Some might be errors yet charges may have accrued that need to be reversed.
Other overdrafts might be purely from fees. Check to see if any of these accounts would work better as zero balance accounts that fund off of a parent account, etc.

Get to the root of the problemm and it will save a lot of work in the long run.