What Is DIF Insurance (Massachusetts Depositors Insurance Fund) – How It Works

Written by promotiondept

November 11, 2018

What s DF nsurance (Massachusetts Depostors nsurance Fund) – How t Works

Boston photo by Jay Yuan

FDC nsurance guarantees the safety of deposts n checkng, savngs, and CD accounts held wth FDC member banks. When a member bank fals, the FDC remburses each depostor up to $250,000 per account. As of md-2015, there are about 6,400 FDC member banks, accordng to the FDIC.

The FDC doesn’t run the Unt States’ only depost nsurance scheme. The Depositors Insurance Fund (DIF) s a lesser-known, less-wdespread scheme that provdes supplemal protecton for funds depost wth Massachusetts-charter savngs banks. Savngs banks prmarly accept savngs deposts and use those funds to ssue mortgages, personal loans, busness crt, and other types of crt vehcles.

However, they often admnster checkng accounts as well. Many smaller communty banks are structur as savngs banks. DF membershp s compulsory – f your bank s structur as a savngs bank and bas n Massachusetts, your deposts are cover by DF nsurance.

DF sn’t to be confus wth the Depost nsurance Fund, whch s the fund the FDC uses to remburse account holder deposts lost due to member bank falures.

Today, DF protects all Massachusetts-charter savngs bank deposts that aren’t protect by FDC nsurance, whch s any amount depost n excess of the FDC’s $250,000 per account lm Accordng to DF, “The combnaton of FDC and DF nsurance provdes customers of Massachusetts-charter savngs banks wth full depost nsurance on all ther depost accounts. No depostor has ever lost a penny n a bank nsur by both the FDC and the DF.”

Wth DF, there’s no maxmum nsur amount per account – depostors’ funds theoretcally enjoy unlmt protectons. However, as most banks mpose maxmum depost lmts – typcally rangng from $1 mllon to $10 mllon per account – there’s a practcal upper lmt to DF coverage.

Put another way, the FDC and DF combne forces to provde Massachusetts-charter banks’ depostors wth the country’s most robust depost nsurance protectons. Durng major downturns, such as the late 1980searly 1990s savngs and loan crss (when 19 Massachusetts banks fal) and the late 2000s fnancal crss, DF was more than adequate to cover depostors’ losses.

n 1932, after a spate of Massachusetts-charter bank falures, the Massachusetts state legslature vot to create the Mutual Savngs Cral Fund (MSCF), DF’s precessor. A con act of the legslature creat the Co-operatve Cral Bank, whch provd depost nsurance for account holders wth crt unons and cooperatve banks bas n Massachusetts.

As the Unt States’ frst state-sancton depost nsurance fund, MSCF was desgn to provde full depost protecton for ndvdual and busness depostors wth fal member banks. After the creaton of the FDC, whch ntally remburs deposts up to $5,000, MSCF’s charter was modf to cover deposts above and beyond the FDC’s coverage lm t’s unclear when MSCF chang ts name to DF.

Cambridge Savings Bank photo by jiawangkun

DF membershp s subject to change as banks start, fal, or change ther charter locaton. Accordng to Depositors Insurance Fund, as of md-2015, DF members nclude the followng:

Though DF’s precessor was creat by a legslatve act, the modern organzaton operates as a prvate organzaton fund by ts member banks. Each DF member s requr to contrbute an annual assessm, or paym, to the general fund. Each member’s assessm s bas on the total value of ts customers’ deposts. Accordng to DIF’s 2014 annual report, the fund took n a total of $2.04 mllon n assessms durng the 2014 fscal year. ndvdual member banks’ assessms aren’t dsclos.

DF nvests assess funds n three man classes of securtes: short- and long-term treasures, debt oblgatons ssu by governm-sponsor erprses (ferally-creat fnancal servces corporatons, such as Fanne Mae and Frde Mac), and prvately ssu mortgage- and asset-back securtes. DF nvests the bulk of ts assets n oblgatons guarante by the Feral Governm.

Snce the value of and proces from these securtes can change (and DF’s expenses fluctuate dependng on a varety of factors), the fund’s net ncome sn’t constant from year to year. For nstance, accordng to ts 2014 annual report, DF’s net 2013 ncome came to $2.53 mllon. ts 2014 net ncome amount to $2.46 mllon.

DF’s total balance – ncludng cash, cash equvals, and securtes – came to about $374.71 mllon n 2013 and $376.19 mllon n 2014. By comparson, ts nsur excess deposts (depostors’ funds nsur above the FDC lmt) amount to $10.1 bllon n 2013 and $11.39 bllon n 2014. n other words, DF was able to cover 3.77% of depostors’ excess funds n 2013 and 3.31% of excess funds n 2014.


DF s overseen by the Massachusetts Dvson of Banks, a state regulatory authorty. By law, t must also submt to ndepend audts by a prvate, thrd-party audtor. On a day-to-day bass, t’s run by a presd and executve team. The executve team perodcally reports to a 13-member board comprs of executves from DF member banks, major employers wth a szable presence n Massachusetts (such as BM), and Massachusetts-bas publc agences (such as MBTA, the Boston area’s transt authorty).

DF doesn’t have the authorty to ndependly examne ts member banks’ fnances. However, t does requre each bank to submt a quarterly fnancal statem. t also works wth the Massachusetts Dvson of Banks, the FDC, and the Feral Reserve, all of whch have authorty to audt banks bas n Massachusetts. DF reles on reports from these tes to defntvely determne whether a member bank s n danger of falng or becomng unable to repay ts oblgatons.

n the ev that a falure ears mmn, DF records an expect lablty on ts balance sheet. f and when a member bank fails, DF steps n f necessary and as requr by law to remburse depostors for any funds lost above the FDC nsurance lm A bankrupt member bank’s membershp generally lapses t’s purchas out of bankruptcy by another DF member or otherwse recaptalz. Regardless of ts solvency, a DF member also loses ts membershp when ts assets are purchas by a non-DF member bank (n other words, a bank headquarter outsde Massachusetts) and t subsequly abandons ts Massachusetts charter.

Massachusetts s home to nearly 7 mllon people, or roughly 2% of the Amercan populaton. Most Amercans have never lv n the Bay State, and many have never even set foot n But that doesn’t mean DF nsurance s of no mport to resds of, say, Texas or Calforna.

For one thng, Amercans are moble. Even f you have no nterest n movng to Massachusetts, you could fnd yourself compell by an employer or some unforeseen lfe crcumstances to do so n the future. n the mdst of tryng to find the right town or neighborhood for your famly, you’re lkely to fnd yourself lookng for a local bank that protects deposts wth DF nsurance.

Alternatvely, you could fnd yourself weghng the best checking account or savings account optons from one of the many onlne banks headquarter n Massachusetts, all of whch offer DF nsurance n addton to FDC nsurance. Or, you could lve n a state that borders Massachusetts, where Bay State banks are more lkely to have satellte branches.

And, f you’re nterest n publc polcy or the legslatve process, you could even hold up DF nsurance as a model for more robust depost account protectons n your home state. After all, both DF and FDC nsurance – crtcal consumer protectons taken for grant today – were unheard of before the 1930s.

Are your bank deposts cover by DF nsurance?

Categores: Banking, Insurance, Money Management

Bran Martucc wrtes about frugal lvng, repreneurshp, and nnovatve deas. When he’s not ntervewng small busness owners or nvestgatng tme- and money-savng strateges for Money Crashers readers, he’s probably out explorng a new tral or samplng a novel cusne. Fnd hm on Twtter @Brian_Martucci.

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What s DF nsurance (Massachusetts Depostors nsurance Fund) – How t Works



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