You're right about that, they (and other fintechs) have tons of accounts split across a ton of tiny little banks. All of those accounts and banks are FDIC insured.
But, those aren't the end client's accounts. They're shared pools of money from all the clients. When Alice and Bob both give the fintech $100, the fintech may split up that total $200 across dozens of different accounts. When Alice wants $20 back, it might not even come from accounts where her initial $100 landed, that money probably got sent to Charlie when he wanted his $1,000 back.
The fintech's money was FDIC insured. If any of those banks failed, all the fintech's deposits would be guaranteed. But if the fintech mismanaged their client funds and suddenly their outstanding balances in their client databases are larger than the sum of all the balances of all their hundreds of FDIC bank accounts, their clients are SOL.
The FDIC is meant to protect individual people from loosing all of their money from the collapse of a bank, currently at $250k. If you have more wealth than that yet have it all as cash in a single account, then, you're pretty much an ID10T. For regular mere mortals, that's a helluva lot better than a bank telling you to pound sand when they collapse. If you're a business thinking the gov't is meant to protect you, then you are also delusional.
SVB collapse has shown that the 250k limit is basically not relevant. Maybe if a big consumer bank like Chase failed then 250k would be the max paid out, but we haven't seen that.
And OP is referring to Synapse, where the FDIC could not help any of the americans who lost their savings because the underlying banks didn't fail. https://www.cnbc.com/2024/11/22/synapse-bankruptcy-thousands...
Only as long as you're too big to fail...
yeah it’s unreal to me how many people who imagine themselves intelligent are just now discovering the equivalent to why we make wheels round.
they never think to ask “why does regulation x exist?”
its absolutely crazypants.
They do, but they think the answer is always some riff on, "government overreach because bureaucrats need to justify their jobs."
That attitude has been firmly ingrained into (at least) a generation of people.
"a lot" would be less rhetorically satisfying, but probably more appropriate.
I suspect the number is in fact, far less than 50%. In mining engineering, I'd be amazed if a significant majority of the rules don't stem from a significant accident or death, or forseeable need to avoid them. In medicine, the stakes are equally high. Building codes? It depends. The cost of tunnelling in NY isn't because of government compliance.
This seems to be following the completely standard and expected process.
Contractor goes belly up, so you go to court and a judge who confirms they were a custodian of your data and you are entitled to retreive it.
Same would be the case if I was leasing equipment to someone and they had it at a storage lot. If the middle party dies or goes bankrupt, I get a court order to claim it from their other possessions.
The issue is more that the court is slow and expensive even in the best case.
> The St. Louis station sued the information management company July 28
How much do you think it cost? A few grand?
Maybe we could replace this by reinventing the wheel, but i dont think it would be better. We could put it on blockchain and let a Peter Theil company handle arbitration.
The legal system is perfectly capable of recognizing stolen property no matter how many layers of abstraction you put it through. The problem is always in the fact that the dispute resolution process is too expensive[0] to be useful. If you are defrauded for $10,000; but the legal fees for your representation will exceed that; then that juice ain't worth the squeeze. See also: Bricks and Minifigs.
In the Nine PBS case the judge correctly recognized Iron Mountain as a constructive bailee of Nine PBS's property and created a framework to retrieve their data. The problem is that this took almost half a year of legal work to get to the obvious outcome to make Nine PBS whole.
In Synapse's case, the problem is slightly different, because Synapse is not a bank, they are a reseller of banking services. That's the whole idea behind "fintech[1]" - that we can sell banking services while dodging all the regulatory compliance designed specifically to stop these kinds of issues so long as a real bank is involved. Saying their deposits are FDIC insured is like saying you have auto insurance because you happen to be riding a taxi. Technically correct but misleading and fraudulent. FDIC insurance doesn't cascade into your customers' accounts, because if it did, you'd be a bank.
[0] There's a similar problem with Bitcoin, where only a certain number of transactions can ever be processed per hour and thus it bottlenecks any higher-layer process that intends to use the Bitcoin blockchain as a settlement or dispute resolution system.
[1] "Fintech" in particular is meaningless as all banks are tech companies. They were one of the first adopters of electronic computers, online transaction processing, and a whole load of other things that seem utterly quaint now.
EDIT: changed "years" to "almost half a year", I was too lazy to do another Google search
Not years. This whole "saga" has been going on for 5 months, and the suit against Iron Mountain was only filed on 28 July, so it just took weeks to come to this current arrangement.
EDIT: Toned down the comment. Leaving the rest, though, since I can't delete it with the reply below.
The problem in the case of Synapse was that they said they were doing that stuff, but were lying. (I think. The details of what happened there are apparently still not public. Also their bank seems to have been doing some sketchy things too.)
It does cascade. It's called pass-through deposit insurance, it's codified in 12 CFR § 330.5 and 330.7. It has existed since the founding of the FDIC. Its enabling statute expressly provided that deposit insurance should be calculated based on the beneficial owners of a deposit account, regardless of in whose name the account is. [0]
Common arrangements include: HSAs, HOA accounts, UTMA/UGMA accounts, guardians and conservators, mortgage servicing accounts, escrow and title agents, payroll processors, brokerage cash sweep programs, prepaid cards, and yes, fintechs. [1]
[0] https://www.fdic.gov/notice-proposed-rulemaking-custodial-de...
[1] https://www.fdic.gov/financial-institution-employees-guide-d...