The truth about the security of funds in the U.S. banking system

By Reid Thomas

The recent turmoil in the U.S. Banking Sector hit close to home for EB-5 stakeholders. When Signature Bank was taken over by the Federal Deposit Insurance Corporation (“FDIC”), many questions, and concerns about the safety of investor funds arose. Signature Bank, who was thought to be the go-to bank for EB-5 deposits and ranked as the 29th largest bank in the country[1], was promoting their strong and stable balance sheet up to the day before the FDIC came in. 

For investors, regional centers, and developers that require banks to be part of the overall solution, what should they know about the safety of the US banking system and what can they do to protect themselves.  When a bank fails, is their money lost, how quickly can they get access to it, is there a better way?  What are the top things to know about bank safety and how to protect EB-5 funds?


At the end of 2022, there were 4,135 FDIC insured commercial banks in the US[2] however less than 10 banks would actually open an escrow account and take EB-5 deposits from investors[3].  And of note, not one of the largest traditional (i.e. too big to fail banks[4]) would take such deposits. So why is that?

“Specialty Deposits” is a term increasingly used by banks to describe the types of deposits that require additional expertise in house to serve the client, and to ensure that the bank does not run afoul of its compliance obligations.  Given the complexity of the EB-5 program it should be no surprise to stakeholders that EB-5 deposits fall into this category.  For a bank to do well in the EB-5 space it needs to invest significantly in the banking systems, controls, and people. 

However, for a large bank, this investment is not cost effective.  “Over the years we have seen large, traditional banks enter the EB-5 sector, and then once realizing the EB-5 due diligence requirements only to pack up and leave in short order because the risk of an EB-5 compliance issue and/or reputational damage is too high,” says Edward Beshara, Managing Attorney of Beshara PA Global Migration Law Firm.

The large banks, as a whole, are not equipped to deal with the complexity of the EB-5 space and if they start and then exit, it often leaves investors, developers, and Regional Centers in a complex and difficult situation to resolve. Effective due diligence and efficient fund administration is a significant part of the EB-5 Regional Center process to be in compliance with the new Reform and Integrity Act of 2022 (the “RIA”).

The risk of an EB-5 compliance issue or reputational damage is too high. At the end of 2022, the top 10 banks in the US had total deposits of over $8 Trillion[5].  At any given time, there might be up to $5 Billion in EB-5 deposits[6] (or less than one quarter of one percent) held within the US banking system.[7] Therefore, the total addressable EB-5 market represents less than one-tenth of one-percent of the deposit space they already compete in.


For small banks to attract clients and grow they must offer something different than the large traditional banks. One way that smaller banks can succeed is by focusing on specialized service sectors – like EB-5.  Because they are smaller, it is easier for them to implement the proper controls across their entire footprint to ensure alignment with any compliance requirements.   Also, a smaller market opportunity, like EB-5, can generate enough deposits to be financially interesting to a smaller bank and at the same time enable the bank to create a positive brand reputation that can be leveraged into additional specialty sectors as a way to accelerate growth. 

However – small banks are more likely to fail than large banks.  As an example, there were a total of 564 bank failures between 2001 & 2023[8].  The average asset size across all of those (including the most recent failures at First Republic, Silicon Valley Bank and Signature Bank) was only $2.25 Billion. 

Consider Signature Bank as an example of why smaller banks often end up failing.  Signature Bank got started in the EB-5 business when its total assets were around $10 Billion, which would have ranked it around the 150th largest US bank at the time. EB-5, with a total addressable opportunity of only $5 Billion is very interesting for a bank of this size. Over the years Signature developed a positive reputation in the EB-5 space and saw its business grow. As its reputation grew, the bank was able to continue to expand into other “specialty” sectors. Decisions to go into some sectors turned out well, others not so much.  In the end, it was activity in the Crypto[9] space, despite it being rather limited in scope, ultimately leading to the entire bank being (rightly or wrongly) taken over by the FDIC.


Originally established in 1933, as a response to widespread bank failures the FDIC, is an independent agency that provides deposit insurance to depositors in most U.S. banks to ensure safety and stability. The FDIC is funded through premiums paid by the Banks that it insures. 

In the event that a bank fails, the FDIC takes over the bank operations, pays out insured depositors and liquidates the bank’s assets, usually by selling the assets to another bank which takes over all or a portion of the remaining bank operations. 

When a bank fails, the two most pressing concerns are first: are the funds safe? and second:  when are the fund accessible? The FDIC currently insures individual depositors up to a $250,000 limit[10].   So, for depositors with less $250,000 there is no concern about lost funds, and they are usually available next business day when a bank is taken over.  However, it's more complicated in the case of EB-5.

First of all, EB-5 investors are each depositing $800,000 or more.  Therefore, everything over the first $250,000 at any particular bank is uninsured and at risk in the event of bank failure.  Many banks now offer deposit sweep products that split the EB-5 investors deposits among a number of different banks.  While this solves the challenge of protecting the EB-5 deposit amount, it complicates getting access to all the funds in the event that there is a bank failure at the primary bank. 

Moreover, in the event that the failed bank was acting as the escrow agent on the account, it will take even more time for the situation to be worked through.  The FDIC will most likely transfer the escrow contract to another bank or terminate the escrow agreement and have funds returned.  Either way, this is not ideal.  While an FDIC sweep product helps with fund security, it creates additional legal and liquidity complications in the event of a bank failure.   


Options like insurance may be choices. But given that there are so few banks that will take EB-5 deposits, and those that do are smaller - what other options really exist?

One approach is to consider using an independent third-party escrow agent/escrow administrator.  The benefits of this became very visible to those EB-5 fund managers that had embraced this approach during the recent bank failures.

The third-party escrow agent, since it is not part of the bank, does not get caught up in the complexity of an FDIC takeover. The best such escrow agents have relationships with hundreds of different depository banks and therefore can often provide more deposit alternatives than the EB-5 escrow banks. 

"Since incorporating this structure into our EB-5 fundraising process, we have discovered that the flexibility offered by this approach offers a greater protection to our investors compared to the conventional escrow bank method," stated Christine Chen, Chief Operating Officer at CanAm Enterprises. "For instance, during the recent banking turmoil, we promptly repositioned our investors' deposits and were the first to announce their full FDIC insurance coverage. This demonstrates our unwavering commitment to placing our clients' needs at the forefront of our core values."

Like the insured cash sweep products that many banks offer, the third-party escrow agent can spread deposits across multiple banks, providing 100% FDIC coverage.  However, the escrow agent can be deliberate about the specific banks involved in holding portions of those deposits, even selecting banks to help secure favorable rates on a construction loan for an EB-5 project.  Most importantly, the third-party escrow agent is regularly monitoring the financial stability of the banks in its network and can move deposits in advance of any perceived trouble.   


EB-5 investing can be risky. Over the years, much has been documented about doing due diligence on projects, developers and Regional Centers. The recent bank instability in the U.S. serves as a good reminder that there is also risk involved in how the treasury management and banking elements of an EB-5 offering are structured.

The banks that are active in EB-5 are almost always small banks, and small banks are historically more likely to fail[11]. While ensuring that the bank holding EB-5 funds is FDIC insured, that, on its own, is not enough.  There are also complex liquidity and contractual issues with escrow or deposit control agreements that are ignited when a bank is taken over by the FDIC.

One step that an EB-5 fund can take to provide 100% FDIC coverage (as in an insured cash sweep product) and avoid the potential liquidity problems, is to use an independent third party (i.e. non-bank owned) escrow agent.  It goes without saying that the escrow agent must be an expert in EB-5.  By separating the escrow agent role from the deposit taking role the EB-5 fund manager has maximum flexibility to help ensure that investor funds are protected and available when necessary.


[1] NY Times Article – May 1 2023 “3 Failed Banks This Year….” By K. Russell & C. Zhang

[2] www.banks.fdic.gov – 2022 data on Commercial Banks

[3] Data taken from JTC Group proprietary database of EB-5 industry data.  Data collected between 2010-2023

[4] Article by Brian Martucci, www.moneycrashers.com  April 12, 2023

[5] Data Sourced from https://www.mx.com/blog/biggest-us-banks-by-deposits/

[6] Estimate based on JTC historical trend data

[7] (https://www.mx.com/blog/biggest-us-banks-by-deposits/). 

[8] Data sourced from FDIC.Gov/Bank/Historical/Bank

[9] NY Times Article - March 12, 2013, “Signature Bank Collapse Fueled by Crypto Bets….” By M. Goldstein & E. Flitter

[10] https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/

[11] https://www.forbes.com/- December 2013 Article “big-banks-versus-small-banks-size-doesnt-matter”

Reid Thomas

Reid Thomas

Reid Thomas brings decades of leadership experience in both public and private companies, primarily in high-growth Silicon Valley technology companies. Thomas has been instrumental in the rapid growth of JTC Americas’ EB-5 and Opportunity Zone businesses, working to develop the purpose-built software solutions and dedicated client services teams, which have propelled the company into leadership positions in both industries.