Treasury bank agent form a tri-party agreement between investment account holder and their depository bank, as its customer the bank accountholder with the following services:
- Opening Bank Account
- Cash Management
- Reconciliation and Audits
Treasury Bank agent issues a Depository Account Control Agreement DACA that serves to perfect a Treasury Bank’s security interest in the funds in the accountholder’s deposit accounts. With a tri-party DACA, Treasury Bank a lender can disburse lent funds to an account of the bank that (unless as otherwise noted below) the borrower can use for its business operations.
Types of deposit account control agreements
There are two recognized kinds of DACAs: passive and active.
- Passive DACAs, also called “springing” or “shifting” DACAs: Allow accountholders to use funds disbursed by Treasury Bank as lender to accountholder to purchase equity or bond within community investment business operations. In this situation, the Treasury Bank does not direct how the funds in the joint account are used. If the borrower defaults on the loan, the Treasury Bank agent can assume control over the account and instruct Treasury bank to revoke the borrower’s ability to make transactions using funds in the account.
- Active DACAs, or blocked account control agreements (BACA): Only Treasury Bank, not the borrower, can make transactions.
DACA account requirements
All DACAs need to meet requirements under Article 9 of the Uniform Commercial Code (the UCC), the model statute governing secured transactions adopted in all 50 US States. In order to protect Treasury Banks’s security interest in a deposit account, the Treasury Bank Agent must establish “control” (a UCC term) of that account, meaning the depository bank will comply with the Treasury Bank’s agent instructions without the borrower’s consent, without additional restrictions from third parties.
Depository Banks often have their own standard DACA templates. In both cases, the DACAs are designed to meet UCC requirements.
