DEFINITION of 'Banker's Blanket Bond'

Banker’s blanket bond (BBB) is a fidelity bond purchased from an insurance broker that protects a bank against losses from a variety of criminal acts carried out by employees. Some states require blanket bond coverage as a condition of operating a bank.

Banker’s blanket bond is also known as a blanket fidelity bond.

BREAKING DOWN 'Banker's Blanket Bond'

A fidelity bond is an insurance coverage against losses that occur from the dishonest acts of employees. The banker’s blanket bond may be applied to individual employees or to job positions in the company. For example, a bank can insure a specific bank manager, or can choose to insure the position itself, so that any employee that assumes those job responsibilities is automatically covered. Some of the types of loses that arise from employee criminal acts covered by a blanket bond include robbery carried out by an employee and forgery. In addition, losses from fraudulent activities carried out by non-employees are also covered under the bond policy.

Banker’s blanket bond is an insurance policy that provides coverage against the direct financial loss from forgery, cyber fraud, physical loss of or alteration to property, extortion, and employee dishonesty. The employee must have committed these frivolous acts for his or her personal gain in order for the company to make any claim against the bond. This means that the bond does not cover losses from the activities of employees who commit unethical transactions for the purpose of making the financial institution appear healthier. For example, losses that result from an employee that cooks the book or engages in other creative techniques to put the company in a better light than it actually is will be exempt from coverage.

The blanket fidelity bond is classified as a first-party coverage since it covers the institution itself, not the account holders or shareholders. However, this bond is not to be taken as a form of credit insurance. A banker’s blanket bond does not extend credit and assume the credit risk of the borrower. This is the sole responsibility of the financial institution. The bond is a regulatory requirement in some states which require banks to obtain fidelity bonds in order to operate.

Measuring the external level of risk and loss of money and securities due to fraud or cybercrime, such as ransomware, can be relatively easy to determine compared to financial loss that may internally arise due to employee shenanigans. Therefore, deciding the necessary amount of bond coverage that a financial institution requires can present a serious challenge. Insurers typically analyze the number of employees and their responsibilities, employee turnover rate, average level of exposure from daily business’ operations, types and average amount of transactions conducted daily, and amount of cash held by the bank. 

RELATED TERMS
  1. Commercial Blanket Bond

    A commercial blanket bond is a type of liability coverage utilized ...
  2. Blanket Appropriation

    Expenditures that are authorized on a blanket basis, without ...
  3. Blanket Contractual Liability Insurance

    Blanket contractual liability insurance is liability insurance ...
  4. Blanket Additional Insured Endorsement

    A blanket additional insured endorsement automatically provides ...
  5. Discovery Bond

    A discovery bond is a type of fidelity bond used to protect a ...
  6. Bond Power

    Bond power is a legal form authorizing the transfer of ownership ...
Related Articles
  1. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  2. Investing

    Why Bond Prices Fall When Interest Rates Rise

    Never invest in something you don’t understand. Bonds are no exception.
  3. Investing

    Bond Funds Boost Income, Reduce Risk

    Bond funds can provide stable returns for those who depend on their investment income.
  4. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  5. Retirement

    Should I Invest in Bonds After I Retire?

    Yes, retirees should invest in bonds, but remember that not all bonds are safe investments. Seek the help of a financial advisor.
  6. Investing

    U.S. Corporate Bonds: The Last Safe Place to Make Money

    There aren't many other sources right now for relatively safe, steady income.
  7. Investing

    How Bonds Are Vital to a Successful Portfolio

    While bonds are a vital part of an investment portfolio, they are often ignored.
  8. Investing

    Key Strategies To Avoid Negative Bond Returns

    It is difficult to make money in bonds in a rising rate environment, but there are ways to avoid losses.
RELATED FAQS
  1. What determines bond prices on the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market and why bond prices and yields ... Read Answer >>
  2. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
Hot Definitions
  1. Investment Advisor

    An investment advisor is any person or group that makes investment recommendations or conducts securities analysis in return ...
  2. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  3. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  4. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  5. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  6. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
Trading Center