IBA Compliance Connection

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We have a potential business customer that is a receivership and asset management company. The company has a court order appointing it as receiver for a distressed condominium building, which it has full authority to operate, manage and conserve. The company would like to open a business checking account titled in its name, while using the tax identification number for the building’s condominium association. We are not comfortable with this title format and would like to know the correct way to title the account. Also, all checks deposited into the account will be made payable to the company as receiver for the building.

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We recommend titling the account to indicate the fiduciary nature of your customer’s relationship with the condo association for deposit insurance purposes. For example, you could title the account as [Company Name], Receiver/Agent/Custodian for [Condo Association Name].

The FDIC’s deposit insurance rules provide separate deposit insurance for the principal in a fiduciary relationship (the condominium association in this case), but only if the bank’s deposit records “expressly disclose” the fiduciary nature of the account and the ownership of the account funds. For example, the FDIC has opined that a receivership account would not receive the protection of separate FDIC insurance if it is designated as an “operations account,” since that title did not disclose the fiduciary nature of the account.

Consequently, we recommend that the title for this account clearly indicate the fiduciary nature of the account, such as by referring to the company as “Receiver” for the condo association. This suggested account title would fulfill the FDIC’s requirements by indicating the fiduciary nature of the account while also reflecting the payee designation on the checks to be deposited into the account.

For resources related to our guidance, please see:

  • 12 CFR 330.5(b)(1) (“The FDIC will recognize a claim for insurance coverage based on a fiduciary relationship only if the relationship is expressly disclosed, by way of specific references, in the ‘deposit account records’ . . . of the insured depository institution. Such relationships include, but are not limited to, relationships involving a trustee, agent, nominee, guardian, executor or custodian pursuant to which funds are deposited.”)
  • 12 CFR 330.5(b)(2) (“Details of fiduciary relationships. If the deposit account records of an insured depository institution disclose the existence of a relationship which might provide a basis for additional insurance (including the exception provided for in paragraph (b)(1) of this section), the details of the relationship and the interests of other parties in the account must be ascertainable either from the deposit account records of the insured depository institution or from records maintained, in good faith and in the regular course of business, by the depositor or by some person or entity that has undertaken to maintain such records for the depositor.”)
  • FDIC Advisory Opinion, FDIC-88-81 (Opining that if a bank “maintains records (in good faith and in the regular course of business) which show the name and ownership interest of each property owner in the account” then separate property management accounts would be insured up to the maximum amount for each property owner.) 
  • FDIC Advisory Opinion, FDIC-92-82 (“As a threshold requirement for pro rata, or pass-through, deposit insurance, the FDIC’s rules provide that the deposit account records of the insured depository institution must expressly disclose the existence of the fiduciary relationship pursuant to which a claim for such insurance is based. . . . An account designated as an ‘operations account,’ whether held in the landlord’s name or by the landlord’s receiver, does not suffice to disclose the possibility of a claim for pro rata insurance (whereas a designation that the account is held by a landlord or receiver as an ‘agent’ or ‘custodian’ would).”)