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It doesn't seem like that to me. It seems like they tried to sidestep the required regulatory hurdles to offer a real checking/savings account and got a wake up call.
Sure, but they just weren't sophisticated enough. It isn't wrong, they just need to go through some more steps, like Fidelity. It will be a non-issue in 60 days.
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I would be interested to see how they and others go about setting up mass numbers of accounts. I imagine it’s probably something boring like a partnership.
https://en.wikipedia.org/wiki/Promontory_Interfinancial_Netw... On any given night your dollars are spread out at banks all over the country. Likely at tiny little community banks that you've never even heard of. It's pretty impressive how banks manage to maximize FDIC insurance.
For example, if RBC "failed" in Canada, woulnd't the payout largely come from the Bank of Canada printing more money and all this could essentially happen without CIDC existing? You might get your money back, but now a loaf of bread costs $1000.
Again, maybe I don't understand how it works. Maybe it makes more sense in the US where there are many smaller banks.
Insight?
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https://en.wikipedia.org/wiki/Promontory_Interfinancial_Netw... On any given night your dollars are spread out at banks all over the country. Likely at tiny little community banks that you've never even heard of. It's pretty impressive how banks manage to maximize FDIC insurance.
Maybe it's because I don't understand how deposit insurance works. Maybe it's because I live in a country where there are relatively few banks. But is this insurance actually meaningful? For example, if RBC "failed" in Canada, woulnd't the payout largely come from the Bank of Canada printing more money and all this could essentially happen without CIDC existing? You might get your money back, but now a loaf of bread…
As for where the funding comes from...the FDIC requires payment into the insurance pool by member institutions, so it's not the government bailing out the depositors each time a bank fails. But if the FDIC pot of money is exhausted, the U.S. Government will still guarantee it by act of Congress. I'm not sure how this works in Canada, however.
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As explained to you in another HN post. HN makes their money via their margin accounts aka Robinhood Gold, and by selling their order flow, like many other brokerages do. It results in better execution for the clients (like myself) and a tighter spread. If it means I get a better price and someone else gets first dibs at the buy or sell side, I honestly don't care. You can use limits if you worry about getting "rippe…
I understand where their revenue comes from. But if they're doing the same thing as every other bank and not charging for trades what's making up the difference on their bottom line? It's not income. So it must be that they're avoiding costs that the rest of the industry is incurring. Like the cost of compliance.
As noted by @asanwal[0] this can be seen as both deceptive and smart. Here's the reality - when you get a $6B valuation, you are accepting VC-fueled growth fate, which means you are on a tightrope to grow at all costs . It's a gamble, but if executed successfully will lead to exponential growth and thus outsized investment returns. Here's my personal problem - there is much needed punitive damages for this type of be…
> there is much needed punitive damages for this type of behavior I'm a fan of Robinhood. But this calls for more than a slap on the wrist. Not punishing someone misrepresenting their FDIC or SIPC insurance status is a horrible precedent. Not only does it show a green light to scammers. It also corrodes the protective, anti-run value these programs provide to depositors and investors.
They were essentially testing the fences. That isn't bad, especially when it's done completely in the open. It gives the regulators an opportunity to say "no" and shut it down immediately if they want to, or say nothing and let it proceed.
If they say no, it doesn't happen long enough for anybody to really come to any harm.
And the alternative is that nobody is willing to try anything new just because there is no existing precedent explicitly saying that it's OK.
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> there is much needed punitive damages for this type of behavior I'm a fan of Robinhood. But this calls for more than a slap on the wrist. Not punishing someone misrepresenting their FDIC or SIPC insurance status is a horrible precedent. Not only does it show a green light to scammers. It also corrodes the protective, anti-run value these programs provide to depositors and investors.
I don't know. The fact that it was done completely publicly (and therefore was discoverable and discovered immediately) basically moots any need for harsh penalties. They were essentially testing the fences. That isn't bad , especially when it's done completely in the open. It gives the regulators an opportunity to say "no" and shut it down immediately if they want to, or say nothing and let it proceed. If they say n…
The part that was grossly problematic was Robinhood falsely claiming it was SIPC-insured. SIPC insurance isn’t automatically granted. There isn’t any useful innovation limited by telling people “try new things, but don’t lie about having certifions you don’t have.”
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As well as Fidelity's checking account, Cash Management Account, is FDIC insured. This definitely feels like a case of Robinhood ignoring some advice.
Not quite. Fidelity CMA accounts are brokerage accounts and thus cannot offer FDIC insurance because Fidelity is not a bank. Fidelity accounts offer SIPC insurance. However, Fidelity's trick is to sweep all cash into third-party FDIC-insured bank accounts behind the scenes. This yields several benefits: 1) Practically speaking, it offers the exact same FDIC insurance as a real bank account, because your money is bein…
There's no hand waving going on.
I think it's becoming increasingly clear what happened. As whitepoplar noted here ( https://news.ycombinator.com/item?id=18691477 ) other similar services are FDIC insured because the funds are swept into FDIC bank accounts behind the scenes. But FDIC insured bank accounts pay very, very little interest, and Robinhood wanted to offer a high interest rate. Their innovation was, instead of sweeping the funds into FDIC…
This could be mitigated substantially by holding short-term treasuries. In theory they could still be worth less than the original principal amount from time to time, but not by very much, and even then they would always be back to at least the original principal amount by the maturity date in e.g. six months.