I think the FDIC insurance is per account at a bank with a banking charter. Fintechs are typically given one account by a real bank
and so funds are commingled but also it is a single account so only 85k insuran ce even though the account might have 1000s customer funds commingled.
This is not true for fiduciary accounts, which are covered per principal. So FDIC coverage should extend to all customers if the account was properly declared.
However this apparently doesn’t protect you from the failure of the third party, which is what is unexpected. If you look at this bulletin the FDIC put out after the Synapse incident, they’re basically claiming they aren’t stepping in because a bank hasn’t failed. A fintech that isn’t the bank, but has records of what’s at the bank, failed.
Personally, I find the explanation to be pretty weak - what does pass through insurance even mean then? Does every fintech startup need to also directly be a bank - if so that’s a huge barrier to entry and basically gifts incumbents with regulatory capture. If the money is in an FDIC protected account, it should be safe. It does not make sense to me that they would step in for Silicon Valley Bank’s failure, but not in this situation.
One weird part of the situation is that it seems the underlying bank does not have records about each customer and their numbers. To me that seems negligent on the part of the underlying bank. Surely they knew about this arrangement of pass through insurance and the need to protect funds. They should have maintained separate accounts for each client of the third party service. Regardless of negligence it seems the FDIC is trying to make this record keeping a requirement:
https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
