Silicon Valley Bank’s unusually high number of uninsured deposits played a role in last week’s run on the bank, after word of the bank’s liquidity troubles spread to the bank’s startup and venture capital clients.
While regulators announced extraordinary measures on Sunday to backstop all of the depositors’ funds, the panic that unsettled SVB’s startup community caused some fintech firms to boost FDIC insurance for new and existing account holders.
Mercury, a startup-focused neobank, said its customers’ deposits are now insured up to $3 million after the fintech worked all weekend to launch a new product that expands FDIC coverage in response to SVB’s collapse.
The company announced Monday that Mercury Vault protects customers who have more than $3 million in their accounts, with investments in Vanguard money market funds, primarily composed of short-term U.S. government-backed T-bills, which will be held 100% in the customer's name.
“Now more than ever, Mercury is focused on helping startups who need peace of mind find secure ways to manage risk and reduce single points of failure,” Immad Akhund, CEO and co-founder of Mercury, said in a statement. “It is abundantly clear that $250K FDIC insurance is not enough for startups, and Mercury is proud to offer 12x that standard protection for startups’ funds and diversification across financial institutions.”
Akhund tweeted on Monday that his neobank was flooded with account signups and that his company was working to prioritize customers looking to open accounts quickly.
“We’ve seen thousands of new customers and billions of deposits come to Mercury since Thursday,” the company said in an email response to Banking Dive.
Vault is open to all Mercury customers and automatically enabled. It continuously monitors cash across the customers’ accounts while providing recommendations for ways to keep the money safe. Recommendations include tools to help startups determine how much money they should set aside in their operating accounts and how much they need to put in Treasury investments, the fintech said.
“We’ve taken a first principles approach to banking, stripping away everything people know and hate about banks and building something from the ground up that is reliable, secure, incredibly easy to use and gives startups the tools and controls they need to make confident money decisions,” a company spokesperson said.
The San Francisco-based fintech works with two FDIC-insured banks, Evolve Bank & Trust and Choice Financial Group, to store the customers’ checking and savings deposits.
Through the partner banks, Mercury customers get access to a sweep network of banks, including Goldman Sachs and Capital One. This network offers up to $3 million in FDIC insurance by automatically spreading customers’ deposits across around 12 banks without a customer opening or managing separate bank accounts.
The treasury product is offered through a FINRA-regulated broker-dealer custodian Apex Clearing Corp. and the mutual funds that customers can invest in through Mercury and Apex partnership are managed by Morgan Stanley and Vanguard.
Mercury said it is working to expand the FDIC insurance coverage limit in the coming weeks.
Amid SVB’s meltdown, fintech Brex announced that it too had expanded its FDIC insurance.
Brex founder and co-CEO Henrique Dubugras said the firm increased the number of partner banks it works with to nine, enabling it boost FDIC insurance from $1 million $2.25 million.
“We will continue to identify other partner banks to work with to further increase the amount of FDIC insurance we can offer in the future,” Dubugras said in an email.
Like Mercury, Brex said it recived a flood of account applications from SVB customers looking to move funds from the bank.
Dubugras said Brex opened more than 3,000 “high quality accounts” over the weekend.
“A situation like this is extraordinary, and we are saddened to see the events impacting an industry peer that served so many in the startup community for decades,” Dubugras said. “While we're still working through everything, we certainly hope people stay our customers in the aftermath of all of this.”
Following SVB’s closure on Friday, Brex also launched an emergency credit line, aimed at helping SVB customers.
By Sunday afternoon, the fintech received over 500 applications requesting $1 billion in payroll loans, the company said.