A blanket bond, or a blanket fidelity bond, sounds warm, fuzzy and friendly, like something that would safeguard your accounts against phishing, check counterfeiting and identity theft. But it’s actually a type of insurance a financial institution purchases to protect itself.
Banks have always been subject to risks from criminal activity. Once upon a time, crimes were carried out in person, in the form of forgery, robbery or theft by a dishonest employee. To cover banks from these perils, the Surety Association of America drafted the first American Bankers Blanket Bond in 1916.
Changes in financial services, such as the introduction of ATMs and electronic banking, caused more risk exposure, and the blanket bond was revised several times over the years. In 1986, the Bankers Blanket Bond was renamed the Financial Institution Bond, Standard Form No. 24, which is the title still used today.
Form 24 protects commercial and savings banks from hazards that include larceny, holdup, robbery, embezzlement, counterfeit currency, fraudulent trading and disappearance of funds while in transit.
The Office of the Comptroller of the Treasury, which regulates banks with National or N.A. after their names, requires these national banks to carry fidelity coverage. The Office of Thrift Supervision oversees federal savings and loans and federal savings banks and has similar rules, as does the National Credit Union Administration, which regulates federally chartered credit unions. State chartered banks are under the control of the Federal Reserve and the FDIC. State laws vary in regard to Form 24 insurance.