Fiduciary Accounts And Loans From A Failed Bank

With more than a hundred and fifty banks in the country failing this 2010

, many investors and borrowers are disconcerted because they do not know what to do with fiduciary accounts and loans from a failed bank. Here is a backgrounder on what you should do in this case:

A fiduciary account, which is insured by a certain party and managed externally, is often insured up $250,000 by the FDIC which is the same insurance limit for money market accounts, Certificates of Deposit or CDs, and savings accounts. UTMA or Uniform Transfers to Minors Acts accounts, escrow accounts, brokered accounts, and IOLTA or Interest on Lawyer Trust accounts are some of the fiduciary accounts that fall under FDIC insurance.

Owning one of these accounts does not ensure that the FDIC will contact you in case the bank holding your account fails, or is purchased or taken over by another bank. This is due to the records system implemented in the event of the failure of a bank. The accounts in the records system of that failed bank are named under the fiduciary, and not individual account owners. In addition, the FDIC cannot access information regarding individual account ownership, so it cannot inform each depositor. Other fiduciaries or the brokers have the responsibility of initiating any claims.

Having a fiduciary account in a failed bank requires the account holder to wait before he or she knows what the current bank owner will do to the said accounts; the owner may service the accounts or put them up for sale to another party. These accounts may also require the depositor to prove who the account beneficiaries are.

Bank loans from a failed bank still need to be paid, as these are transferred from the failed institution and either sold to the bank or other party that takes over. Regardless of who owns the bank after the transition, the borrower still needs to fulfill his or her end of the loan transaction and pay the agreed-upon amount. While some people may think that their loan records may get lost or their payment responsibilities canceled due to the purchase because they do not receive any notifications or bank statements for some time, the records are actually transferred into the system of the new bank. Sometime after the systems of the new bank are updated, borrowers will receive notice of their obligations, if not soon after the takeover.

Having fiduciary accounts or loans with a failed bank usually requires the account holder or borrower to wait for some time before records in the system of the new bank to become updated. Some time after the transfer of ownership, both account holders and people who took loans from the failed bank will be informed as to the status of their loans and accounts, and need to take the appropriate action.

by: Katherine Smith

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