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Comment by cypherpunks01 | Hacker News Reader

I'd think logically, in this hypothetical scenario, that money from the FDIC receivership would be deposited into a new bank such that there is continuous coverage of deposit insurance on all the customers. But yes, reality is that fintech firms don't do everything perfectly, and there are complex constraints that I'm sure we're not aware of.

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One key problem is bankruptcy. If the fintech ever touches the money and then goes BK, the court can and will pull back that money and likely pay some to folks who are not the customers, like employees who have senior BK claims.

In the linked hypothetical, fintech never touches the money, but the devil is in the implementation details and shortcuts happen.

This is important: FDIC insurance protects you if the bank goes bust, but it doesn’t protect you if the company/fintech/exchange you’re using goes bust, even if they use an FDIC-insured bank.

This exact issue came up repeatedly in the past few years with crypto companies whose FAQs and even executives falsely told people their deposited money was FDIC-insured simply because the company itself banked with an FDIC bank. That’s not how it works.

One of many recent sad examples: https://mobile.twitter.com/Frances_Coppola/status/1543279013...

Another one: https://mobile.twitter.com/Frances_Coppola/status/1640909892...

(Frances Coppola is a great person to follow on Twitter.)

Consolidating FDIC payouts into one big wire transfer introduces a single point of failure.

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