investors3 . And of note , not one of the largest traditional ( i . e . too big to fail banks4 ) 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 Trillion5 . At any given time , there might be up to $ 5 Billion in EB-5 deposits6 ( 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 onetenth of one-percent of the deposit space they already compete in .
" The large banks , as a whole , are not equipped to deal with the complexity of the EB-5 space ."
THE BANKS THAT ARE WILLING ARE MUCH SMALLER AND RISKIER
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 .
HAVING DEPOSITS IN AN EB-5 ESCROW AT AN FDIC INSURED BANK ISN ’ T ENOUGH
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
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