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Comment by tempsy | Hacker News Reader

Why would anyone go from midsized public bank to opaque neobank if they're now spooked about bank solvency issues?

The logical move is to go bigger eg JPM.

Mercury just announced a new cash management / CDARS account to provide up to $3mm of FDIC coverage through 12 partner banks, with plans for potentially more. I would hope the lesson from SVB's collapse is don't put your eggs all in one basket, not put them in the biggest basket you can find.

(That said, said service to split your eggs up doesn't need to be Mercury - they're just the VC-backed startup darling here. There's plenty of other banks that offer these services.).

Because (apparently; I'm just reading from their web site) they deposit your funds into 12 separate accounts at 12 separate FDIC banks so you are insured up to $3M and a single-bank failure can at worst take 1/12 of your deposits.

Seems like services like this should be more popular.

It's called an Insured Cash Sweep and most banks offer it: https://en.wikipedia.org/wiki/Insured_Cash_Sweep

The problem here is one of fiscal immaturity at startups. SVB offered ICS accounts but from what I'm seeing few startups put their money into them. My bet is that startups mature enough to have a proper CFO weren't as impacted by this mess.

from what I've read, they're a standard practice in traditional finance/risk management circles? it's what makes the whole situation with SVB so much more mind-bending. this isn't some new technology that's never existed before. why were VCs insisting that money had to be held at SVB, knowing that by doing so, they'd put their funded companies above FDIC insurance thresholds?

was it incompetence or greed?

Am I the only one wondering why they're allowed to circumvent the $250K cap like this?

Presumably there's a cap for a reason, and presumably it's to protect ordinary Americans who rarely have $250K in assets, and not rich people who can literally afford to lose that much and still be rich.

Based on the description of what they do, how is that circumventing? You can do the same thing they're doing by depositing into multiple banks too. The only difference is that Mercury is the custodian, and doing it for you

It's not circumventing the cap. If one bank fails, there's only a $250k insured loss, which is exactly the FDIC's goal with the cap

No, this is exactly what's supposed to happen. The FDIC wants large depositors to spread their deposits over many banks as this reduces overall risk. The limit is not about protecting "ordinary Americans" over "rich people".

The cap is designed to be circumvented in this way. You don’t game the system, if you think so, the system games you.

does that mean that every time you purchase a coffee, 13 transactions take place to keep the distribution balanced?

otherwise 1/12th of your deposits would be the /best case scenario/ not the worst case.. it comes down to the details of how they balance the balances.

if all of the accounts are below the $250k, then you actually have zero at risk, not even 1/12th

As long as your accounts are under the limits, there's no need to re-balance on outflow, just ensure you remain under the insurance limits at inflow

I'd probably move about 250k an opaque neobank if I'm spooked about to solvency issues.

Mercury isn't really a bank. They are a nice, new UI that uses real banks behind the scenes. The main bank they use is Evolve bank and trust and has been around since 1987. But as of last year, they just had around $1B in assets under management.

Doesn't this lead to concentration of asssets into bigger banks?

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