The recent takeover of First Republic Bank by JP Morgan Chase briefly resurfaced the instability of the regional banking sector as front page news. For many, if not most people, the issue has largely become background noise, and a surprising number of cooperative and condominium boards have still not taken adequate steps to address it.
This blog is a reminder that board members, who have not already done so, should at this point in time pay special attention to their fiduciary duty to safeguard and prudently invest their building’s funds.
The starting point
The starting point would be to identify where, exactly, your building’s funds are being held and how much is in each account. Particular attention should be directed to accounts that exceed the federally insured $250,000 for bank accounts and $500,000 for securities’ accounts.
Insuring your funds
Then, you should discuss with your managing agent, accountant or other financial advisor, a plan to get all uninsured funds insured. This might require the involvement of your mortgage lender and/or corporate counsel as some lenders require that the building’s funds be deposited, in whole or in part, with them. These requirements are typically incorporated into the applicable loan documents.
Besides the legal restrictions, your analysis should consider the purposes for which the funds are being held, when the funds will be needed, and the interest available for insured accounts of corresponding duration. For example, is it a real estate tax escrow that will be emptied every three months or a reserve for unknown future repairs?
With your financial team, you can consider whether it is wise to move some funds out of non-interest bearing checking accounts and into short-term Treasury notes or money market accounts or, perhaps, utilize a bank that is in the IntraFi Network or offers another service that automatically “sweeps” uninsured balances into insured accounts at a variety of institutions.
The bottom line
This legal alert is not financial advice. We leave that to your financial advisors. Rather, it is simply a reminder that, as board members, you should not be passive. Please feel free to contact any of the members of the Cooperative and Condominium Practice at SGR with any questions.