Mercury Vault: money market fund and up to $3M in FDIC insurance
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Through our partner banks, customers get access to a sweep network that provides up to $3M in FDIC insurance by spreading your deposits across up to 12 different banks, including Goldman Sachs & Capital One, without requiring you to open or manage separate accounts.
Oops, sorry, not supposed to ask such questions.
- We currently work with two partner banks, Evolve Bank and Trust and Choice Financial
- Both our partner banks operate or are part of a sweep network (https://mercury.com/blog/company-news/understanding-bank-swe...), where they can move funds into other banks. Each bank your money is in increases FDIC coverage by 250K.
- For customers on our partner bank Evolve, this was bumped from 1mm to 3mm as of this morning. You get this automatically if you have accepted the T&Cs for the sweep program already; if you haven't you can do so at: https://mercury.com/settings/vault
- For customers on our partner bank Choice, you're still at 1mm FDIC insurance. We are working on getting you an Evolve savings account (or getting increased coverage from Choice) by tomorrow morning, or you can keep excess funds in Treasury (see below)
# treasury
- We also have a product called Mercury Treasury. This allows you to invest in mutual funds, the safest of which is a Vanguard Treasury Money Market fund (VUSXX), which invests primarily in short-term U.S. Treasury bills https://investor.vanguard.com/investment-products/mutual-fun...
- These securities are held in your name at Apex Clearing, which is https://www.apexclearing.com/
- They're not part of any fractional reserve system like with banks; every share of a mutual fund you hold is in your name and Apex can't lend against it (unless you give them permission which would be weird)
- You can automatically sweep any funds between our treasury product and your savings account. Liquidity is about 3 to 4 days.
- All treasury funds are visible on your Mercury dashboard, so you don't have to manually manage fund movements or keep track of your total balance across websites
- You also earn interest on these
AMA if you'd like, though caveat I'm jumping between a lot of Slack messages right now (edit: probably bowing eat to eat lunch)
Who is the owner of record on these Mercury accounts at "other banks"?
Can I withdraw *my* money from these "other banks" without Mercury involvement or approval? If not, then *Mercury* may have increased FDIC coverage but the Mercury depositor does not.
You as the customer are the owner of record on the funds. The accounts are held by our partner banks at these other banks, as your agent and custodian (something like "Evolve Bank and Trust for benefit of Acme Corp).
The FDIC insurance applies to the business holding the funds; it is definitely not insuring Mercury itself.
You do need to use Mercury to withdraw the funds; we still run all the authorization and compliance rules around this, and there isn't a facility for you to go into eg United Texas Bank and ask for your money. That said, if Mercury were to go bankrupt tomorrow, your funds are held by our partner banks who have full KYC/KYB info on you would be able to access all your funds.
How fast and how?
You might consider providing a "living will" document that keeps your clients up-to-date on where the $$$ are and how they access them. If I'm using something like this I would want to be sure I can make payroll the day after you vanish.
(Not a potential customer or cash management expert, prioritize accordingly.)
My best guess, not until OK'd by a bankruptcy judge. You may have a strong claim on the funds but so does Mercury --- hence the fact stated above that you can't withdraw without their approval. On the other hand, they may be able to withdraw without your approval. A bankruptcy judge is the only one who could override their claim and release these funds to you.
Remember, SVB was an FDIC bank. The reason depositors are able to withdraw money today is because of the quick actions of the FDIC.
If the client is the owner of record Mercury hasn't any claim at all.
Only Mercury knows the exact structural details but based solely on their statement above, they have significant control and claims that you can't easily override yourself.
I wouldn't count on this all being resolved quickly in the event of a bankruptcy.
SVB offered sweep accounts. Guess how that worked out for folks with money in those accounts? They lost access just like everyone else. If you had a sweep account and you needed to make payroll on Friday, you were not protected.
Mercury charges 60bps for their Treasury product. Why the hefty fee for buying MMFs? VUSXX expense ratio is 9bps for comparison.
Question: what happens when FDIC limits are exceeded. For example, someone deposits 5M on a 3M limit.
Are the excess funds equally distributed over the underlying banks, or is there a specific allocation strategy?
1. As others have said in the comments, I wouldn't assume all funds are 100% insured. It is trending that way but I think if you are a CFO managing 10s of millions, its responsible to consider other assets.
2. Our interest rates on Treasury are pretty competitive, up to 4.67% for the slightly-less-conservative fund MULSX (various conditions apply, depends on how much you hold in treasury, etc; see https://mercury.com/treasury for details).
We are OK not having the absolute highest interest rate offering. Our position is:
* The Mercury product is much better than what most banks offer, across features like searching transactions, WebAuthn logins, virtual cards, etc (You can try the whole website at https://demo.mercury.com/)
* Mercury is much better optimized for startups (eg compliance that understands startup needs, doesn't ask your CEO to go into a branch to send wires)
You can always get a higher interest rate by eg buying treasuries yourself. Our position is for most founders, investing in these mutual funds is a safe, no-brainer options that optimizes for safety while keeping the convenience of a single dashboard.
1) You get bailed out no matter what your insurance rate
2) Defaults are at such a high rate that the FDIC doesn't have the money to bail everyone out, the economy tanks, and all businesses that rely on risky VC investment fail anyway
It's like betting $100 on something that won't happen until you're dead. Sure, you might be correct, but there's no real benefit to it.
No experience with this actual Money Market Fund account announcement
Doesn't this stress FDIC insurance as a system?
It seems to me it's counter to the intention of FDIC insurance in the first place (keep the small guy's money safe, assume the rich guy has plans to keep himself safe)
Their "dogshit" is 10 year treasuries almost exclusively.
There are many ways that banks might fail. Most of those are idiosyncratic and unique to the bank's operations.
When the money is spread across multiple institutions most of the risk the FDIC is taking is uncorrelated, therefore costing less to insure.
Quite refreshing compared to the American Capitalism hellscape, though kind of expected because its a national corporation.
- The FDIC's risk is distributed across many bank balance sheets
- The FDIC is collecting insurance premium on these deposits
Structures like this have existed for decades.
[ETA: I've just seen a good bit in the WSJ that such structures do abuse deposit insurance, since they allow large depositors to avoid inspection of bank liquidity. So maybe I'm wrong.]
On the flip side, why would you engage in a bank run when you’re fully insured? It seems it would slow the incentives to be part of a bank run, which is the systemically damaging part.
Does this resonate with their target customer, as what they're looking for, to hold their money and provide misc. banking services?
(Personally, I love their decor and lifestyle aesthetic, but... I'd prefer to entrust my money to a place that seemed interested in providing good customer service for rock-solid banking services to small-fry me, yet was also a time-tested battleship of a trusted institution, where the head of it could get POTUS on the phone if ever needed.)
All one has to do now is bank somewhere that "everyone thinks safe". So long as the community sharing this belief is sufficiently large and politically connected, the government will underwrite their belief. Questioning the groupthink is for risk nerds.
Fintechs that rely upon Banking-as-a-Service (BaaS) arrangement like this are woefully under-regulated.
They were showing them through ESPN last night.
There are multiple threads trying to go into detail about the nuance of what happened, so I'll spare from rehashing it here. But it certainly was not promising FDIC coverage on all deposited funds.
What scenario can you imagine where this does not hold true?
SVB is almost the perfect scenario in which to haircut depositors, and yet here we are.
You can see dividend payouts from failed banks here: https://closedbanks.fdic.gov/dividends/
There are many examples of cases in which depositors take a 4-10% haircut, and receive it months or years after the failure (meaning the haircut is quite a bit larger when factoring for time).
Was always wondering if they got more, but nope.
(They did get lucky in that fdic limit was $100k and I think they retroactively upped it to $250k on this failure, but that probably hurt rather than helped anyone with over $500k or so).
Many other examples of >10% losses, would be cool if someone did an analysis.
Bank stocks will crash more, and consumers will ultimately feel the pinch as banks use the only tools then available to create margins: dramatically increased fees and cost of borrowing.
But to say that the FDIC came out and announced 100% protection of all deposits is no more true today than it was when banks were bailed out in the '08 crisis, and there have been many, many examples of depositors losing money since those bailouts happened.
You can debate the nuances all you want, I’m sticking with the simple proof and reality. FDIC member banks offer 100% depositor protection now.
Edit: this is not debating nuances. Insurance coverage is not what we feel and think it is. It's what is specifically documented and funded. In this case, the FDIC is neither documenting nor funding 100% coverage for all deposits in the nation. They may decide to do so, but they certainly have not at this time.
The HN community is all for free-thinking except when its own conventions are contradicted. And those conventions are quite self-interested.
I know this sort of meta-discourse is off-limits, but the effect is real and does deserve notice.
Oh well.