an artificial tongue with a natural curl
When you deposit money at a bank, you expect the bank to give it back to you. There are two things you might worry about, two sets of risks that might prevent the bank from giving you back your money. One is that the bank might lose the money. Banks do not generally just keep your money in the vault. They use it to make loans, so there is risk: The loans might default, or depositors might all demand their money back at once when the bank does not have a lot of ready cash. […]
The other risk is that the bank might lose track of the money. You might go to the bank and deposit $100, and the bank might write down “$100” next to your name in its notebook, and then it might spill coffee on the notebook and be unable to read the entry and forget that it owes you the $100. And then you might come back to the bank in a week and ask for your $100 back and the bank might say “who are you? what $100?” […]
If a bank loses all your money, the FDIC [Federal Deposit Insurance Corporation] can give you your money back, because the FDIC is the government and can print money. If the bank loses its list of who has the money, what can the FDIC do? […] The definitive list of who the bank owes money is kept by the bank. Unless it isn’t.
I have never really understood the Synapse situation, but in my defense Synapse doesn’t understand it either. […]
Synapse functioned as a middleware provider between banks and fintechs. Synapse was a pioneer in what came to be known as “banking-as-a-service” (BaaS). In this role, Synapse opened accounts on behalf of approximately 100 fintech companies (and millions of end users) at four different partner banks.
On April 22, 2024, Synapse filed for Chapter 11 bankruptcy. On May 11, the partner banks lost access to the records maintained by Synapse and were unable to determine which end-users rightfully should be able to withdraw their funds.
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You could imagine a world in which technology companies were better and nimbler and more accurate at keeping lists on computers than banks were. But in our world, banks have hundreds of years of history and regulation that have taught them that keeping an accurate list of who has the money is really, really, really, really, really important, and they tend to do it.
