Safe Deposit Boxes: Well, Sort of Safe

The Federal Deposit Insurance Corporation points out that "a safe deposit box is not a deposit account. It is storage space provided by the bank, so the contents, including cash, checks or other valuables, are not insured by FDIC deposit insurance if damaged or stolen.”

The agency, known for the consumer protections it offers, also notes that “financial institutions generally do not insure the contents of safe deposit boxes.”

As it turns out, there is no regulatory oversight of safe deposit boxes in banks – either from the federal or state government, and that doesn’t seem likely to change, according to officials.

Consumer vulnerability - in the uncommon but not unprecedented event that the contents of their safe deposit box disappear - was highlighted in an article in The New York Times recently.  The Times reported on numerous incidents, including one in which a bank inadvertently emptied the contents of a safe deposit box due to a mix-up in box numbers.  Once emptied, the contents were not all recovered after the mistake was realized.  In that case, valuables worth hundreds of thousands of dollars vanished.

The Times noted that “there are an estimated 25 million safe deposit boxes in America, and they operate in a legal gray zone within the highly regulated banking industry. There are no federal laws governing the boxes; no rules require banks to compensate customers if their property is stolen or destroyed.”

Federally chartered banks are regulated by the federal Office of Comptroller of the Currency; state chartered institutions by the state Department of Banking in Connecticut.  Their regulatory focus, however, is to ensure that financial deposits are protected, and the institution is financially sound.  Safe deposit boxes don’t fall under their jurisdiction. 

The contents are property of the consumer, not the bank.  The use of such boxes are a matter of contract law – an agreement between the institution and the consumer – and any dispute is one for the courts.  Consumers appear not to have any other regulatory recourse, according to Connecticut officials.

“The combination of lax regulations and customers not paying attention to the fine print of their box-leasing agreements allows many banks to deflect responsibility when valuables are damaged or go missing,” the Times pointed out, indicating that there are hundreds of instances reported around the country of box contents disappearing from consumers safe deposit boxes in banks. 

Possibly exacerbating the problem are the contractions within the industry. The number of bank branches in the United States has been steadily declining — down 10 percent in the last decade, according to the Times — and safe deposit boxes are “being relocated, evicted and sometimes misplaced.” The American Association of Appraisers website notes an instance in which “the bank was sold and the branch closed. All of the safe deposit boxes were moved to the new location. In the process, some were ‘misplaced’.”

The Office of the Comptroller of the Currency told the Times it had no grounds to get involved in such matters. “No provision of federal banking law expressly regulates safe deposit boxes,” said Bryan Hubbard, an agency spokesman. And banking officials in Connecticut, with responsibility to provide oversight of Connecticut’s state-chartered institutions, said essentially the same.

Leaders of the state legislature’s Banking Committee did not immediately respond to an inquiry on the subject, and there do not appear to be any incidents in Connecticut that have raised the profile of the issue.  

The American Society of Appraisers points out that “by and large safe deposit boxes are safe. They are not, however, 100% safe. Whether it be theft, error or acts of nature (i.e. Hurricanes Katrina and Sandy), your best defense is to keep an accurate and detailed inventory of the contents of your safe deposit box.”