Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

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alex_686
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by alex_686 »

Geologist wrote: Thu Jul 04, 2024 8:58 pm I just looked In the same FDIC database (https://banks.data.fdic.gov/explore/failures). From 2008-2010, only 10 banks failed with zero loss to FDIC insurance funds. This is 10 of 335 total failures. This is 3% of the number of banks closed with no loss to the FDIC, not 85%. While several of these were large banks (e.g., Washington Mutual), the 325 banks that did fail with losses to the FDIC represented 51% of the total deposits for that period with a loss to the FDIC insurance funds of more than $59 billion.

Beyond that, the FDIC’s own history of the 2008-2013 period (Crisis and Response: an FDIC History, 2008-2013), shows the Deposit Insurance Fund (DIF) balance fell from $50 billion in mid-2007 to below negative $15 billion in late 2009. (see https://www.fdic.gov/bank/historical/crisis/chap5.pdf) That’s a > $60 billion loss, again hardly pennies. (There is considerable discussion in the history about how the FDIC dealt with this problem, which has its parallels to the recent SVB failure.)

Thus, I want to emphasize that researching the FDIC database and the FDIC’s own written history of the GFC both contradict you.

The FDIC even has a neat little graph on the bottom of its main webpage (www.fdic.gov ; scroll all the way down) showing the DIF balance from Q1 2007 to Q1 2024 going from positive (above $50 billion to negative (in the same magnitude as above) in the Great Financial Crisis. So, for an overview, you don’t even need detailed research.
Please read part 2, chapter 4 - IIRC

https://www.fdic.gov/resources/publicat ... sponse.pdf

From a accounting perspective it is interesting on how the FDIC loan guarantees were handled. However, not that interesting, it turned out to be a non-event.

It is a excellent overall read.
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Re: Synapse bankruptcy: a PSA for anyone using fintech banks

Post by technovelist »

alex_686 wrote: Wed Jun 26, 2024 9:28 pm
technovelist wrote: Wed Jun 26, 2024 7:29 pm And even if Fidelity did "blow up", the assets in their Treasury-only MMFs should be safe unless there was massive fraud. And I assume T-bills kept at Fidelity would be even safer than that. Does anyone know if that is true?
Every fund is its own separate company. Every fund keeps its assets in a segregated account at a custodial bank. The funds assets can't be comingled. Not with other funds, the fund sponsor, or the custodial bank. So no impact if either both the fund sponsor and the custodial bank blew up.

Note, unless you are on margin or participate in securities lending, your assets in your brokerage account are kept in a segregated account. So no issues if your broker blew up.
I have margin privileges but don't use it other than to sell one security and buy another on the same day, which I do once in awhile. Do I need to worry about this use of margin?
If so, should I move my securities into non-margin status? I think I can do that without having to sell and rebuy, but I'm not certain.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by anagram »

alex_686 wrote: Thu Jul 04, 2024 9:27 pm
Geologist wrote: Thu Jul 04, 2024 8:58 pm I just looked In the same FDIC database (https://banks.data.fdic.gov/explore/failures). From 2008-2010, only 10 banks failed with zero loss to FDIC insurance funds. This is 10 of 335 total failures. This is 3% of the number of banks closed with no loss to the FDIC, not 85%. While several of these were large banks (e.g., Washington Mutual), the 325 banks that did fail with losses to the FDIC represented 51% of the total deposits for that period with a loss to the FDIC insurance funds of more than $59 billion.

Beyond that, the FDIC’s own history of the 2008-2013 period (Crisis and Response: an FDIC History, 2008-2013), shows the Deposit Insurance Fund (DIF) balance fell from $50 billion in mid-2007 to below negative $15 billion in late 2009. (see https://www.fdic.gov/bank/historical/crisis/chap5.pdf) That’s a > $60 billion loss, again hardly pennies. (There is considerable discussion in the history about how the FDIC dealt with this problem, which has its parallels to the recent SVB failure.)

Thus, I want to emphasize that researching the FDIC database and the FDIC’s own written history of the GFC both contradict you.

The FDIC even has a neat little graph on the bottom of its main webpage (www.fdic.gov ; scroll all the way down) showing the DIF balance from Q1 2007 to Q1 2024 going from positive (above $50 billion to negative (in the same magnitude as above) in the Great Financial Crisis. So, for an overview, you don’t even need detailed research.
Please read part 2, chapter 4 - IIRC

https://www.fdic.gov/resources/publicat ... sponse.pdf

From a accounting perspective it is interesting on how the FDIC loan guarantees were handled. However, not that interesting, it turned out to be a non-event.

It is a excellent overall read.
Are the FDIC database numbers above incorrect?
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Re: Synapse bankruptcy: a PSA for anyone using fintech banks

Post by alex_686 »

technovelist wrote: Thu Jul 04, 2024 9:42 pm I have margin privileges but don't use it other than to sell one security and buy another on the same day, which I do once in awhile. Do I need to worry about this use of margin?
If so, should I move my securities into non-margin status? I think I can do that without having to sell and rebuy, but I'm not certain.
Brokers can lend out 140% of your securities. So if you are borrowing $0, that means they can lend out 140% of that - so $0.

Buying and selling the same day doesn’t require margin as long as you sell first.
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alex_686
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by alex_686 »

anagram wrote: Thu Jul 04, 2024 9:46 pm Are the FDIC database numbers above incorrect?
I am on a smart phone for the week so I won’t be doing any fine analysis. I know there is enough nuance in those numbers that I won’t be able to do it justice. Hence why I pointed to a authoritative in-depth analysis of those numbers.

As I alluded to up thread, the probable difference between our reads were the loan guarantees. Many assets were marked down due to temporary liquidity issues making them difficult to impossible to sell. By extending guarantees the FDIC allowed the acquiring bank to hold onto these assets which matured without loss.

It was a bold move that really paid off.
Last edited by alex_686 on Thu Jul 04, 2024 10:29 pm, edited 2 times in total.
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Northern Flicker
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by Northern Flicker »

My apologies if this point was made upthread.

From the article posted by the OP:
The heart of the dispute between Synapse and Evolve Bank involves a foundational function of finance: keeping accurate ledgers of transactions and balances. Synapse and Evolve disagree on how much of Yotta’s funds are held at Evolve, and how much are held at other banks that Synapse worked with.
Why should this be an FDIC insurance issue? FDIC insurance covers a bank insolvency. There is no evidence that Evolve Bank is insolvent. Synapse is a player in the middle parceling assets out to various banks.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by anagram »

Northern Flicker wrote: Thu Jul 04, 2024 10:00 pm My apologies if this point was made upthread.

From the article posted by the OP:
The heart of the dispute between Synapse and Evolve Bank involves a foundational function of finance: keeping accurate ledgers of transactions and balances. Synapse and Evolve disagree on how much of Yotta’s funds are held at Evolve, and how much are held at other banks that Synapse worked with.
Why should this be an FDIC insurance issue? FDIC insurance covers a bank insolvency. There is no evidence that Evolve Bank is insolvent. Synapse is a player in the middle parceling assets out to various banks.
This point has been made multiple times upthread.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by Northern Flicker »

anagram wrote: This point has been made multiple times upthread.
Perhaps this adds a new angle to that.

If using an FDIC-insured sweep account at Vanguard or Fidelity, and there is a record-keeping issue, what is the status of coverage? If the banks holding the assets are solvent, it will not be an FDIC insurance issue. If the assets are at a bank, does SIPC coverage still apply? Since it is a feature used with a brokerage account, perhaps it would.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by Helium »

Northern Flicker wrote: Thu Jul 04, 2024 10:46 pm
anagram wrote: This point has been made multiple times upthread.
Perhaps this adds a new angle to that.

If using an FDIC-insured sweep account at Vanguard or Fidelity, and there is a record-keeping issue, what is the status of coverage? If the banks holding the assets are solvent, it will not be an FDIC insurance issue. If the assets are at a bank, does SIPC coverage still apply? Since it is a feature used with a brokerage account, perhaps it would.
The Synapse/Evolve situation is the perfect test case for this, and it would apply to Vanguard/Fidelity as well. People are just more comfortable with Fidelity/Vanguard but there is still risk.

Honestly, just spread your cash around healthy FDIC insured banks with high rates. I don't know why people try so hard to make Fidelity/Vanguard cash accounts work. Keeping all your money (cash and investments) with one institution seems like a poor idea, and it's not even that much more convenient.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by anagram »

Helium wrote: Fri Jul 05, 2024 12:39 am
Northern Flicker wrote: Thu Jul 04, 2024 10:46 pm
anagram wrote: This point has been made multiple times upthread.
Perhaps this adds a new angle to that.

If using an FDIC-insured sweep account at Vanguard or Fidelity, and there is a record-keeping issue, what is the status of coverage? If the banks holding the assets are solvent, it will not be an FDIC insurance issue. If the assets are at a bank, does SIPC coverage still apply? Since it is a feature used with a brokerage account, perhaps it would.
The Synapse/Evolve situation is the perfect test case for this, and it would apply to Vanguard/Fidelity as well. People are just more comfortable with Fidelity/Vanguard but there is still risk.

Honestly, just spread your cash around healthy FDIC insured banks with high rates. I don't know why people try so hard to make Fidelity/Vanguard cash accounts work. Keeping all your money (cash and investments) with one institution seems like a poor idea, and it's not even that much more convenient.
Please tell me where I can get a high yield account with ACH debit autopay? And no 6 transactions per month restrictions.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by Northern Flicker »

Helium wrote: Fri Jul 05, 2024 12:39 am
Northern Flicker wrote: Thu Jul 04, 2024 10:46 pm
anagram wrote: This point has been made multiple times upthread.
Perhaps this adds a new angle to that.

If using an FDIC-insured sweep account at Vanguard or Fidelity, and there is a record-keeping issue, what is the status of coverage? If the banks holding the assets are solvent, it will not be an FDIC insurance issue. If the assets are at a bank, does SIPC coverage still apply? Since it is a feature used with a brokerage account, perhaps it would.
The Synapse/Evolve situation is the perfect test case for this, and it would apply to Vanguard/Fidelity as well. People are just more comfortable with Fidelity/Vanguard but there is still risk.
Maybe. That it is a brokerage sweep is a potentially relevant difference.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by Helium »

anagram wrote: Fri Jul 05, 2024 12:54 am
Helium wrote: Fri Jul 05, 2024 12:39 am
Northern Flicker wrote: Thu Jul 04, 2024 10:46 pm
anagram wrote: This point has been made multiple times upthread.
Perhaps this adds a new angle to that.

If using an FDIC-insured sweep account at Vanguard or Fidelity, and there is a record-keeping issue, what is the status of coverage? If the banks holding the assets are solvent, it will not be an FDIC insurance issue. If the assets are at a bank, does SIPC coverage still apply? Since it is a feature used with a brokerage account, perhaps it would.
The Synapse/Evolve situation is the perfect test case for this, and it would apply to Vanguard/Fidelity as well. People are just more comfortable with Fidelity/Vanguard but there is still risk.

Honestly, just spread your cash around healthy FDIC insured banks with high rates. I don't know why people try so hard to make Fidelity/Vanguard cash accounts work. Keeping all your money (cash and investments) with one institution seems like a poor idea, and it's not even that much more convenient.
Please tell me where I can get a high yield account with ACH debit autopay? And no 6 transactions per month restrictions.
I'm testing out Everbank (TIAA) right now:

https://www.everbank.com/banking/performance-savings

I can't find anything about a 6 transfers per month restriction for them. They also have a checking account you can attach it to in case you need that. They have high transfer limits and seem promising for a hub account.

Northern Flicker wrote: Fri Jul 05, 2024 1:21 am Maybe. That it is a brokerage sweep is a potentially relevant difference.
Yes, but still. Just seems like a lot of uncertainty for not that much gain. The fact that nobody really understands which government insurance should apply where in the transaction flow. I feel that bogleheads should be smarter than keeping all their eggs in the same basket anyway. Everyone has their own risk tolerances, but I feel like this case has shown us maybe it's better to keep things simple (regular banks with no middle man). The more parties there are the riskier it is, even if it's small.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by anagram »

Helium wrote: Fri Jul 05, 2024 1:39 am
anagram wrote: Fri Jul 05, 2024 12:54 am
Helium wrote: Fri Jul 05, 2024 12:39 am
Northern Flicker wrote: Thu Jul 04, 2024 10:46 pm
anagram wrote: This point has been made multiple times upthread.
Perhaps this adds a new angle to that.

If using an FDIC-insured sweep account at Vanguard or Fidelity, and there is a record-keeping issue, what is the status of coverage? If the banks holding the assets are solvent, it will not be an FDIC insurance issue. If the assets are at a bank, does SIPC coverage still apply? Since it is a feature used with a brokerage account, perhaps it would.
The Synapse/Evolve situation is the perfect test case for this, and it would apply to Vanguard/Fidelity as well. People are just more comfortable with Fidelity/Vanguard but there is still risk.

Honestly, just spread your cash around healthy FDIC insured banks with high rates. I don't know why people try so hard to make Fidelity/Vanguard cash accounts work. Keeping all your money (cash and investments) with one institution seems like a poor idea, and it's not even that much more convenient.
Please tell me where I can get a high yield account with ACH debit autopay? And no 6 transactions per month restrictions.
I'm testing out Everbank (TIAA) right now:

https://www.everbank.com/banking/performance-savings

I can't find anything about a 6 transfers per month restriction for them. They also have a checking account you can attach it to in case you need that. They have high transfer limits and seem promising for a hub account.

Northern Flicker wrote: Fri Jul 05, 2024 1:21 am Maybe. That it is a brokerage sweep is a potentially relevant difference.
Yes, but still. Just seems like a lot of uncertainty for not that much gain. The fact that nobody really understands which government insurance should apply where in the transaction flow. I feel that bogleheads should be smarter than keeping all their eggs in the same basket anyway. Everyone has their own risk tolerances, but I feel like this case has shown us maybe it's better to keep things simple (regular banks with no middle man). The more parties there are the riskier it is, even if it's small.
The problem with Everbank is it is NOT owned by TIAA. It is owned by PE.

Second their MM is 4.05% so I think their savings is a teaser and won't last. Moving all autopays for a few months is not something I want to do.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by Northern Flicker »

When opening an account with an internet bank, go to the FDIC web site and look them up to confirm they are a legitimate bank. Get the URL/domain from the FDIC to confirm that you actually are doing business with that bank. If that is not available at the FDIC, get the mailing address instead, and send the first deposit as a small amount by paper check to that address. For a credit union, use the NCUA web site.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by Northern Flicker »

Helium wrote: The fact that nobody really understands which government insurance should apply where in the transaction flow. I feel that bogleheads should be smarter than keeping all their eggs in the same basket anyway. Everyone has their own risk tolerances, but I feel like this case has shown us maybe it's better to keep things simple (regular banks with no middle man). The more parties there are the riskier it is, even if it's small.
I'm fine with a treasury money market fund. If one of those ever broke the buck, it would not be by much if the US Treasury (and FDIC insurance) were still functional.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by Northern Flicker »

nisiprius wrote: Wed Jul 03, 2024 4:42 pm I wrote to asksipc@sipc.org

Fidelity offers a cash management account that lets you deposit more than $250,000, and have it automatically routed and distributed to multiple FDIC-insured program banks so that it can be fully covered by FDIC insurance.

Fidelity says:

"Your Cash Balance while held by Fidelity and in transit to or from a Program Bank is not FDIC-insured but is covered by SIPC.”

I thought SIPC only covered money held by a brokerage pending a securities transaction, and I thought that a bank account was not a security.

Is Fidelity correct?
I received this reply:
Dear [inquirer}

In the event of brokerage failure where the firm cannot satisfy its obligations to customers, SIPC protects securities and cash on deposit for the purpose of purchasing securities that are in a customer’s securities account at the member securities broker. You are correct that a bank account is not a security. Cash deposited for the purpose of earning interest or anything other than the purpose of purchasing securities would not be protected by SIPC. Cash that has been swept to a bank as part of a bank-sweeps program would not be protected.

SIPC
I don't think the reply is completely clear. But I think it does raise doubts about whether Fidelity is correct. If I give my cash to Fidelity as part of their cash management program, it is for the purpose of earning interest, even if it doesn't actually begin to earn that interest until they successfully deposit it in the bank.
And if the assets are used to earn interest, pay bills, and purchase securities, then what?
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by Northern Flicker »

There is a more recent news story concerning Yotta:

https://www.cnbc.com/2024/06/21/synapse ... anish.html
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by Northern Flicker »

Intention for use of funds to buy securities also was a significant factor in SIPC coverage for some of the losses incurred by customers of Bernie Madoff.

https://www.investmentnews.com/industry ... tors-23191
Under the statute that created the SIPC, a customer is defined as anyone who has deposited cash with a broker-dealer for the purpose of purchasing securities.

“There were no transactions and no securities, but [Mr. Madoff] told people he did [place trades], and took their money on that premise,” said Stephen Harbeck, president and chief executive of the Washington-based SIPC.

“As long as customers deposit money for that [SIPC-]protected purpose, they’re covered,” he said.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by MrM1 »

Northern Flicker wrote: Sat Jul 06, 2024 4:53 pm There is a more recent news story concerning Yotta:

https://www.cnbc.com/2024/06/21/synapse ... anish.html
I wonder how the phrase "Went Missing" will end up being interpreted? Sound like "Stolen" to me.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by alex_686 »

MrM1 wrote: Sat Jul 06, 2024 7:13 pm
Northern Flicker wrote: Sat Jul 06, 2024 4:53 pm There is a more recent news story concerning Yotta:

https://www.cnbc.com/2024/06/21/synapse ... anish.html
I wonder how the phrase "Went Missing" will end up being interpreted? Sound like "Stolen" to me.
I have read a fair number of case in this area. You may be surprised on how shoddy many startup back room operations are.
Last edited by alex_686 on Mon Jul 08, 2024 12:02 pm, edited 1 time in total.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by Northern Flicker »

SIPC coverage is limited to $250K for cash, $500K for securities, per account type. This begs the question: what is cash for the purposes of SIPC coverage?

from: https://www.sipc.org/for-investors/what-sipc-protects
How Is My Cash Protected
SIPC protects cash in a brokerage firm account from the sale of or for the purchase of securities. Cash held in connection with a commodities trade is not protected by SIPC. Money market mutual funds, often thought of as cash, are protected as securities by SIPC. SIPC protects cash held by the broker for customers in connection with the customers’ purchase or sale of securities whether the cash is in U.S. dollars or denominated in non-U.S. dollar currency.
So cash held in a money market fund, whether or not it is a settlement fund, is a security. If the shares "go missing" their replacement will count against the $500K limit. Cash held in a sweep account that is held by a bank but accounted for by brokerage record-keeping will be cash, and if covered, will count against the $250K cash limit. I think it also will count against the $500K limit, but I'm uncertain of that. To be covered, it must be established that the cash was being held for the planned future purchase of securities, or was realized from the sale of securities or dividends from securities.

Will cash management features like billpay services, connecting to venmo or paypal, or an attached debit card undermine the claim based on intention? If the cash was from dividends from securities or the sale of securities, then it still would qualify. But it appears to me that just depositing cash there and using it for banking would not qualify.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by lazyday »

Good summary on Synapse:
https://www.nytimes.com/2024/07/09/busi ... rance.html
Many were told at one point that they had debit cards and accounts at Evolve, but have now learned it was another unnamed bank who had their money. Mr. Holmes of Evolve said the bank “transferred all end user funds” to other banks at the request of Synapse, but declined to identify them.
Judge Barasch said he had no answers. He suggested that depositors might hire lawyers of their own to sue those involved.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by jebmke »

lazyday wrote: Tue Jul 09, 2024 6:44 am Good summary on Synapse:
https://www.nytimes.com/2024/07/09/busi ... rance.html
Many were told at one point that they had debit cards and accounts at Evolve, but have now learned it was another unnamed bank who had their money. Mr. Holmes of Evolve said the bank “transferred all end user funds” to other banks at the request of Synapse, but declined to identify them.
Judge Barasch said he had no answers. He suggested that depositors might hire lawyers of their own to sue those involved.
This guy -- Yotta’s founder, Adam Moelis
He added: “This is basic stuff. While we feel horrible for the impact this has had on our customers, that these parties are unable to account for and reconcile tens of millions of dollars is not our fault.”
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by nisiprius »

jebmke wrote: Tue Jul 09, 2024 6:54 am This guy -- Yotta’s founder, Adam Moelis
He added: “This is basic stuff. While we feel horrible for the impact this has had on our customers, that these parties are unable to account for and reconcile tens of millions of dollars is not our fault.”
Not as horrible as the customers feel. And if the third parties were unreliable, whose fault is that? Who chose them to partner with?

This is a big, big hypothetical, because I imagine Fidelity is careful about the third-parties it works with. But, hypothetically, if an SIPC-member brokerage happened to use Synapse as part of a cash management service, would anything be any different? Would the money, while being handled by Synapse, be covered by either SIPC or FDIC? My assumption is "no."

Finally, the key sentence is "Mr. Hingle's" comment, “I thought this was a bank that was F.D.I.C. insured.” So one point is that these fintechs, despite the fine print in light grey at the bottom of the web page, are not disclosing the truth in a way that the public understands. Despite the legalistic pro forma disclosure, the public thinks these things are banks.
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by ez_mode »

https://techcrunch.com/2024/07/09/evolv ... customers/

The situation just got even worse. It's not stated if this breach impacts the fintech customers, but I wouldn't be surprised if it does and is the real cause behind a lot of "lost" ledger aspect.
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Confirm An On-Line "Bank" Has FDIC!

Post by BBBob »

[Thread merged into here --admin LadyGeek]

Spotted this in today's NY Times. It is behind a paywall though. The gist is that some folks discovered they had no deposit insurance when their high-yield Bank turned out not to be one.

https://www.nytimes.com/2024/07/09/busi ... rance.html
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by LadyGeek »

I merged BBBob's thread into the ongoing discussion.

(Thanks to the member who reported the post and provided a link to this thread.)
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by aristotelian »

nisiprius wrote: Tue Jul 09, 2024 8:50 am
jebmke wrote: Tue Jul 09, 2024 6:54 am This guy -- Yotta’s founder, Adam Moelis
He added: “This is basic stuff. While we feel horrible for the impact this has had on our customers, that these parties are unable to account for and reconcile tens of millions of dollars is not our fault.”
Not as horrible as the customers feel. And if the third parties were unreliable, whose fault is that? Who chose them to partner with?

This is a big, big hypothetical, because I imagine Fidelity is careful about the third-parties it works with. But, hypothetically, if an SIPC-member brokerage happened to use Synapse as part of a cash management service, would anything be any different? Would the money, while being handled by Synapse, be covered by either SIPC or FDIC? My assumption is "no."

Finally, the key sentence is "Mr. Hingle's" comment, “I thought this was a bank that was F.D.I.C. insured.” So one point is that these fintechs, despite the fine print in light grey at the bottom of the web page, are not disclosing the truth in a way that the public understands. Despite the legalistic pro forma disclosure, the public thinks these things are banks.
I am trying to find a straight answer on this but seems to me the point of SIPC is to ensure cash and securities held at brokerages so if the cash was at Synapse Brokerage it should be covered. Once it is at a partner ba k, it would be covered by FDIC. If it is at another Synapse entity, as appears to be the case, it is in a gray zone that isn't covered by either.
lazyday
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by lazyday »

“It’s not enough for a bank to have in their contract a provision that says the partner is going to perform actions X, Y, and Z,” FDIC board member Jonathan McKernan told Semafor. “The bank has to actually monitor that the partner is performing steps X, Y, and Z…. And that doesn’t happen a lot, candidly.”
https://www.semafor.com/article/07/10/2 ... bankruptcy
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anagram
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by anagram »

The latest on the debacle.

https://www.cnbc.com/2024/07/11/synapse ... osits.html

Personally I would not touch Evolve bank with a 10 foot pole. Seems like the bank was set up to service BaaS. Interesting that the Fed is now involved.
alex_686
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Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by alex_686 »

lazyday wrote: Thu Jul 11, 2024 12:26 am
“It’s not enough for a bank to have in their contract a provision that says the partner is going to perform actions X, Y, and Z,” FDIC board member Jonathan McKernan told Semafor. “The bank has to actually monitor that the partner is performing steps X, Y, and Z…. And that doesn’t happen a lot, candidly.”
https://www.semafor.com/article/07/10/2 ... bankruptcy
So I was trying to figure out how this could happen. It seemed so bizarre. There are people whose job is to make sure that this doesn't happen. And apparently it is because they didn't hire people for the required jobs. Sigh. Semi-standard issues for a small, shaky start-up. It is the boring back office stuff that trips them up.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
lazyday
Posts: 3873
Joined: Wed Mar 14, 2007 10:27 pm

Re: Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

Post by lazyday »

“To the extent banks are working with fintech partners, banks have a responsibility to manage the risks,” Michael Barr, the US Federal Reserve’s vice chair for supervision, said in a July 9 speech in Washington. “We have, unfortunately, seen examples of failures of banks to effectively manage the risks of partnerships with other companies that support services to their end customers, and these failures have resulted in customer harm.”
a regulatory loophole: Smaller banks are allowed to charge merchants higher fees than big banks for processing debit card transactions. This allowed fintech companies to work with those smaller banks to make money splitting the card fees.
https://www.bloomberg.com/news/articles ... ness-model
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