Question

Cash held in trust by a national bank:

a. May be deposited in the commercial department of the bank while awaiting investment or distribution, provided the bank shall set aside collateral securities qualifying under the provisions of 12 CFR 9.10(b).
b. May be invested in a savings account in the bank if consistent with account investment objectives.
c. May be invested in a savings account in an affiliated bank if approved in writing by the vested beneficiaries.
d. May be deposited in the commercial department of the bank while awaiting investment or distribution, only up to the amount of FDIC coverage.

Answer 1

Cash held in trust by a national bank must adhere to special regulations regarding deposit and investment. Certificates of deposit (CDs) are just one example of how a bank might handle savings, offering higher interest rates but penalizing early withdrawals. Additionally, reserves are a critical part of bank asset management, with the Federal Reserve regulating the required reserves for financial stability.

Step-by-step explanation:

Cash held in trust by a national bank may be subject to certain restrictions and conditions before it can be deposited or invested. While a bank may offer various means for depositing such as a certificate of deposit (CD), there are specific guidelines that apply when a bank is handling trust funds.

For a CD, clients agree to deposit a summed amount of money for a predetermined period, usually stretching from a few months to several years. This agreement comes with a promise of a higher interest rate than regular savings accounts, but it also includes a substantial penalty for early withdrawal. Trust funds may have similar or different investment strategies, including the need for collateral or consistency with the trust's investment objectives.

Reserves are also an essential aspect of a bank's asset management. They represent money that banks keep on hand and do not lend out or invest. The Federal Reserve sets a requirement for these reserves to ensure financial stability, and banks may hold these reserves in their vaults or at the Federal Reserve Bank.