The U.S. Department of Justice’s U.S. Trustee Program (USTP) recently updated safeguards for bankruptcy funds by introducing a revised and modernized form depository agreement for banks and financial institutions that accept bankruptcy estate deposits.
On June 3, the USTP began transmitting the new agreement to existing authorized depositories and any banks that have expressed interest in signing up. The modernized agreement reflects the evolution in the way that the USTP, Department of the Treasury and financial institutions conduct business. The agreement was last revised in 2013.
“Banks that serve as authorized depositories provide vital foundational support to the bankruptcy system by safeguarding critical recoveries,” said Director Tara Twomey of the Executive Office for U.S. Trustees. “In modernizing this agreement, the USTP remains dedicated to ensuring broad access to banking services for debtors, including those in rural and remote areas.”
The new agreement accommodates advances in technology and the reorganization of the Treasury, and it reflects changes in the methods used for safeguarding certain deposits and in applicable laws and regulations. Additionally, the new agreement aims to simplify the process for banks to become authorized depositories and streamlines two versions of the prior agreement into a single document.
The changes come as the USTP continues to strengthen important safeguards for bankruptcy estate funds following recent banking instability. As the banking turmoil unfolded, the USTP undertook a comprehensive review of its systems for monitoring the deposit and collateralization of funds by trustees and other fiduciaries whom the USTP is charged to supervise. The USTP’s policies and procedures worked as intended. Even in the absence of federal intervention, all bankruptcy funds were protected from a risk of loss except where bankruptcy courts waived the safeguards. Still, the USTP found areas where changes would be beneficial due to technological updates and modernized banking practices.
The modernization of the depository agreement is the product of a robust outreach process, including meetings with stakeholder groups and informational sessions for banks and software vendors that work with trustees.
Under bankruptcy law, trustees and other fiduciaries, including chapter 11 debtors-in-possession, must deposit or invest bankruptcy funds with banks or financial institutions that offer products insured or guaranteed by the full faith and credit of the United States. These rules protect the deposits if the bank fails. When deposits exceed applicable deposit insurance limits, banks must “collateralize” the deposits either by obtaining a bond or pledging government securities. The USTP routinely objects to attempts to waive these safeguards in chapter 11 cases.
The USTP’s mission is to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders – debtors, creditors and the public. The USTP consists of 21 regions with 89 field offices nationwide and an Executive Office in Washington, D.C. To learn more about the USTP, visit http://www.justice.gov/ust.
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