Do bonds provide adequate protection from scams to financial institutions?  An excellent article in National Underwriter (here) outlines some of the coverage issues, particularly regarding mortgage fraud.  The article points out:

The two insuring perils common to most crime insurance policies and bonds are: employee dishonesty, covering situations where an insider has something to do with the fraud, and “securities extended forgery,” covering losses sustained in connection with loans.

A nearly $500,000 check in New York highlights the situation (see here).  A bank accepted the deposit, and the money was subsequently wired to China before the bank determined the check was counterfeit.  The bank has sued their insurer for failure to cover the loss.

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