Function

• Organizations are allowed to set up escrow accounts to protect their funds with investment banks. This is accomplished by giving stewardship of the account to a neutral third party. The party who developed the account has limited access to the funds, namely in the case of covering essential costs. The third party acts as the account operator and is responsible for keeping the bulk of the investment intact while the bank waits to hand over the account to a buyer.
  
  

Features

• The party who set up the escrow account has no say in how the money in the account is invested. The investment bank that holds the money handles the administrative aspects of the account itself. This means that the neutral bank decides whether to invest the funds into stocks, bonds or other commodities.
  
  The escrow account also needs to retain 5 percent of its value untouched. This guarantees minimal insurance against loss. However, it also limits the amount of return within the escrow account.
  
  

Significance

• New regulations for escrow accounts controlled by investment banks were introduced in 2007 by the Real Estate Regulatory Authority (RERA). RERA established greater transparency regarding the actions of the investment banks in regards to the accounts. This means that the third party has to inform the originator of the account and the buyer of the account exactly what has been done with the funds and which investments were made at what levels.
  
  

Considerations

• Laws also exist that state how the escrow account is established. All originators of the accounts must obtain approval from the Land Department in order to start the account. In addition, any planned sales of the development must be managed by investment banks approved by the Land Department. The parties acting in this oversight capacity are known as escrow agents. The accounts also need to provide for retention amounts in the account for security purposes. In case any defects in the construction are found, the developer can pay to rectify the situation.
  
  

Effects

• With only a limited number of investment banks and financial institutions being authorized to set up escrow accounts, the risk of investing money within these accounts is minimal. RERA and the Land Department ensure the quality of the neutral parties in monitoring the transactions of the account. This process has allowed many people to purchase homes, as well as businesses to build property. The expansion and accountability of escrow accounts have created additional infrastructural advantages for the United States, with new construction occurring at regular intervals.