Given the recent news of issues facing the banking industry and inquiries from concerned lawyers, the following is information that may be helpful in understanding FDIC coverage for IOLTA accounts and ways to maximize that coverage.
As noted in our recent post on Silicon Valley Bank, a critical component of FDIC insurance is that IOLTAs are treated as Fiduciary accounts and qualify for pass-through coverage to the underlying owners (clients), assuming proper account titling and the ability of the attorney to produce substantiating documentation to verify the client balances. This means that each CLIENT in an IOLTA account is afforded the $250,000 maximum insurance coverage (for all funds they have at that institution, whether in an IOLTA or other account), regardless of the balance in the account.
“Client”, in this instance, may mean an individual, a business, or funds held in joint or multiple ownership categories, as defined by the FDIC (Please see: ). With the availability of pass-through FDIC coverage, it is possible that an IOLTA account containing millions of dollars may still be fully FDIC insured. If the balance in an IOLTA account exceeds $250,000, the attorney or law firm may need to demonstrate to the FDIC the different clients’ ownership of funds in the pooled IOLTA account so it is important to keep all IOLTA account records up-to-date and properly reconciled. It is also important that the IOLTA account is properly designated as a trust account, including that the title includes “IOLTA,” “Clients’ Funds,” etc.
Even with pass-through FDIC coverage, however, lawyers may find themselves holding in excess of $250,000 for an individual client in their IOLTA account. In the cases of Silicon Valley Bank (the former Boston Private Bank & Trust), and Signature Bank in New York, the FDIC ultimately covered ALL depositors in full, not just those up to $250,000. Also, since the year 2000, only one Massachusetts bank has failed and that bank was acquired in a smooth transition with all depositors fully covered. However, going to back to the 1990s and the S&L crisis, many more institutions failed and in less orderly fashion. Given the unpredictability of a potential future crisis, lawyers have understandably asked the question “What else can I do?”
While often not convenient, a quick and effective way to increase FDIC insurance is to use multiple banking institutions. Because FDIC coverage is applied per institution, maintaining accounts at multiple institutions where feasible will leverage the available coverage. Credit Unions also provide $250,000 of coverage per client in an IOLTA account, identical to the FDIC coverage, through the National Credit Union Administration (NCUA). The NCUA Share Insurance Fund is backed by the full faith and credit of the United States, like FDIC. The IOLTA Committee maintains a list of some 200 Massachusetts banks and credit unions that are eligible to hold IOLTA accounts, available here: approved-iolta-depositories.
Massachusetts savings banks and credit unions also participate in an industry sponsored insurance fund called the Depositors Insurance Fund (DIF). DIF insures deposits in excess of the FDIC limit. It is important to note that the DIF is not government backed like FDIC and NCUA, and there is no guarantee that it would have funds available to payout claims in the event of widespread bank failures. DIF may, however, add an additional layer of security for uninsured deposits when IOLTA accounts are held at those institutions. Please see the following for more information on DIF and a list of participating institutions: . (Remember to compare to the list of IOLTA eligible institutions before opening an IOLTA account).
In addition to the traditional methods to maximize FDIC insurance discussed above, there are now products in the marketplace that can automatically allocate funds for the purpose of maximizing FDIC insurance. By using a network of participating banks, products like the Insured Cash Service (ICS) from IntraFi Network LLC (and others) can create many millions of dollars of FDIC coverage. While the IOLTA checking account is maintained at the eligible institution, overnight funds over FDIC limits are automatically invested in the network banks participating in the program. Funds are always available on demand in the IOLTA account but registered deposits are created to generate the insurance coverage. Additional information and a list of banks that offer the ICS product can be found here:
The IOLTA Committee has reviewed the ICS product and determined it is a suitable repository for IOLTA funds in Massachusetts. We plan to propose specific amendments to the applicable Rules of Professional Conduct and IOLTA Guidelines to clarify the use of these FDIC enhancement products in the near future. In the interim, bankers or lawyers with questions including whether a particular FDIC sweep product is currently allowable may contact the IOLTA Committee for further guidance.
In addition to the ICS sweep, Rule 1.15 has for many years allowed for funds in the IOLTA account in excess of $100,000 (the prior FDIC insurance maximum) to be temporarily reinvested in repurchase agreements fully collateralized by U.S. Government obligations. These “repo” investments can also offer additional safety in the form of government securities for high balance IOLTA funds. (See: .) And of course, lawyers should strive at all times to maintain IOLTA accounts at institutions that they believe are operating in a safe and sound manner. The additional options noted in this article may help when the unexpected happens.
For further information on FDIC insurance related issues and IOLTA Accounts, or to discuss any particular bank product, please contact us at 617-723-9093 or This email address is being protected from spambots. You need JavaScript enabled to view it..
Even with pass-through FDIC coverage, however, lawyers may find themselves holding in excess of $250,000 for an individual client in their IOLTA account. In the cases of Silicon Valley Bank (the former Boston Private Bank & Trust), and Signature Bank in New York, the FDIC ultimately covered ALL depositors in full, not just those up to $250,000. Also, since the year 2000, only one Massachusetts bank has failed and that bank was acquired in a smooth transition with all depositors fully covered. However, going to back to the 1990s and the S&L crisis, many more institutions failed and in less orderly fashion. Given the unpredictability of a potential future crisis, lawyers have understandably asked the question “What else can I do?”
While often not convenient, a quick and effective way to increase FDIC insurance is to use multiple banking institutions. Because FDIC coverage is applied per institution, maintaining accounts at multiple institutions where feasible will leverage the available coverage. Credit Unions also provide $250,000 of coverage per client in an IOLTA account, identical to the FDIC coverage, through the National Credit Union Administration (NCUA). The NCUA Share Insurance Fund is backed by the full faith and credit of the United States, like FDIC. The IOLTA Committee maintains a list of some 200 Massachusetts banks and credit unions that are eligible to hold IOLTA accounts, available here: approved-iolta-depositories.
Massachusetts savings banks and credit unions also participate in an industry sponsored insurance fund called the Depositors Insurance Fund (DIF). DIF insures deposits in excess of the FDIC limit. It is important to note that the DIF is not government backed like FDIC and NCUA, and there is no guarantee that it would have funds available to payout claims in the event of widespread bank failures. DIF may, however, add an additional layer of security for uninsured deposits when IOLTA accounts are held at those institutions. Please see the following for more information on DIF and a list of participating institutions: . (Remember to compare to the list of IOLTA eligible institutions before opening an IOLTA account).
In addition to the traditional methods to maximize FDIC insurance discussed above, there are now products in the marketplace that can automatically allocate funds for the purpose of maximizing FDIC insurance. By using a network of participating banks, products like the Insured Cash Service (ICS) from IntraFi Network LLC (and others) can create many millions of dollars of FDIC coverage. While the IOLTA checking account is maintained at the eligible institution, overnight funds over FDIC limits are automatically invested in the network banks participating in the program. Funds are always available on demand in the IOLTA account but registered deposits are created to generate the insurance coverage. Additional information and a list of banks that offer the ICS product can be found here:
The IOLTA Committee has reviewed the ICS product and determined it is a suitable repository for IOLTA funds in Massachusetts. We plan to propose specific amendments to the applicable Rules of Professional Conduct and IOLTA Guidelines to clarify the use of these FDIC enhancement products in the near future. In the interim, bankers or lawyers with questions including whether a particular FDIC sweep product is currently allowable may contact the IOLTA Committee for further guidance.
In addition to the ICS sweep, Rule 1.15 has for many years allowed for funds in the IOLTA account in excess of $100,000 (the prior FDIC insurance maximum) to be temporarily reinvested in repurchase agreements fully collateralized by U.S. Government obligations. These “repo” investments can also offer additional safety in the form of government securities for high balance IOLTA funds. (See: .) And of course, lawyers should strive at all times to maintain IOLTA accounts at institutions that they believe are operating in a safe and sound manner. The additional options noted in this article may help when the unexpected happens.
For further information on FDIC insurance related issues and IOLTA Accounts, or to discuss any particular bank product, please contact us at 617-723-9093 or This email address is being protected from spambots. You need JavaScript enabled to view it..