Question received from a Trust Dept. customer: Bank ABC has a trust dept. The dept has a money market account used for deposits of checks, interest payments, dividends, etc and....some customer's money. Lets say Jane Doe has $500,000. sitting temporarily in the department's account(pending investment in something else) It is our understanding that the FDIC limitations do not apply and that the Trust Department's assets are "off the table" in a worse case scenario such as a bank in trouble. Or, will $400,000 of Jane's money be at risk...where is this covered??? I can't find anything on the FDIC site????

The trust department simply operates in a fiduciary capacity for the customer. When a trust department receives customer deposits and pools the funds in a single account at the same commercial bank, each customer's deposit is insured up to $100,000 (presuming the customer does not have other deposits at the institution). State and/or federal law may also require the commercial bank to pledge government bonds or surety bonds on behalf of the trust department to protect the funds in the pooled account. So in your scenario above, Jane Doe's deposoit would be insured by the FDIC up to $100,000, and the remainder of the deposit would likely be covered via government bonds (or surety bond) pledged by the commercial bank. Refer to the excerpt below from the FDIC's Trust Exam Manual (Section 3, Part I):


Some trust departments sweep cash to the commercial department's deposit accounts on an overnight basis, rather than sweep to an external investment vehicle. In those situations, bank management should have a strategic plan for the activity. Within that plan, management should not view overnight trust funds as a long-term funding source for the commercial department. Management should have calculated the costs, including interest on deposits and the FDIC deposit insurance assessment. More importantly, trust management should be able to demonstrate that the customer is at least as well compensated, as he would have been with an external sweep, usually a money market fund. Care should also be taken to assure the deposit account is appropriated titled in the commercial department's records to insure pass-through deposit insurance coverage. Examiners should be aware that Section 24 of the FDI Act prohibits the pledging of bank securities to secure deposits of trust accounts. However, an irrevocable letter of credit issued by an agency of the U. S. Government or a surety bond, issued on behalf of the bank or trust department, is allowable under the regulation.

So, if ABC Company has an account in the trust department and also in the commercial department, are they insured together? Ie. ABC has an MMDA account at the Bank with $200,000 in it. In the trust department, XYZ Bank, in trust for ABC Company, also holds $200,000. Are these each fully insured for the $400,000 total? or is it limited to $250,000?

On titling in the trust department, is that how it should show to ensure pass through insurance? XYZ Bank, in trust for ABC Company...??

And where in Section 24 of the FDI Act does it prohibit pledging bank securities to secure deposits of the trust accounts? I can't seem to locate anything in Section 24. Is this referring to Gov't securites the bank has purchased, or only "bank securites"???? It's Friday and the brain is fried!!!