Why is that supposed to be necessary? The government is more than capable of telling you if it's a problem, and if it's not a problem -- which is the default -- it would only waste resources on the part of everyone.
What I suspect may have happened here is that the traditional banks soiled themselves when they saw the announcement and started calling around to see who they could get to put a stop to it.
The head of the SIPC essentially said as much in the article: "This has gigantic ramifications for the banking industry." As if his role is to save the mortgage banks from competition.
> I had started toying with Robinhood; I immediately pulled everything I've got back out. They aren't trustworthy custodians.
Presumably they're SIPC insured. :)
If I say “I’m insured by AIG,” I actually need to be insured by AIG. It’s not AIG’s job to tell me I’m lying. SIPC coverage isn’t automatically granted. Robinhood already has SIPC coverage through their brokerage products; this is abundantly clear to everyone there. Whether through fuck-up or will, they ignored a clear regulatory line.
But that's the weird thing. This new product is essentially a combination of two things.
1) A brokerage account instructed to hold safe treasury-related securities. This is exactly the sort of thing the SIPC normally insures. Expecting them to refuse that is really bizarre -- it's their main purpose. And as you note, they already do have that insurance for their brokerage accounts.
2) An ATM card and bank routing number that makes it easy to transfer to/from the brokerage account, so that it can be used as a checking/savings account. This is the real innovation, but it doesn't affect the risk to the insurer in any apparent way or really have much to do with them at all. Withdrawing the insurance over this only makes sense if it was done out of politics. Punishing them for failing to anticipate a political backlash seems particularly unjust.
Car accidents are the sort of thing most insurers usually insure. That doesn’t make it okay to lie about whether you have insurance. If this is still somehow confusing you, please stay away from banking and healthcare.
> An ATM card and bank routing number that makes it easy to transfer to/from the brokerage account, so that it can be used as a checking/savings account. This is the real innovation
I have a Fidelity Cash Management Account that does exactly this. The cash deposits are swept into FDIC-insurer accounts. The brokerage products are SIPC insured. I have a debit card I can spend against the cash deposits.
The difference is Fidelity applied for and obtained SIPC protection. This involves installing various auditing and safety mechanisms. Approval isn’t guaranteed. Automatically forcing the SIPC to insure everything that looks like a brokerage account would be a horrible idea.
Would you be ok with that?
> Would you be ok with that?
When I'm in the insurance business and the party making that claim is paying me insurance premiums under the same terms that I'm already insuring existing things with a commensurate level of risk? That is how insurance works.
If you have renter's insurance and you buy a new television on credit, telling the creditor that you have renter's insurance before you tell the insurance company that you have a new television is not some kind of fraud. If the insurer then suddenly threatens to cancel your insurance if you try to add the television, you have to go back to the creditor, but why would you have reasonably expected them to do that?
But the second one is the one that applies to a future product you haven't actually provided yet.
This is slack laziness and cavalier disrespect for their userbase. I had started toying with Robinhood; I immediately pulled everything I've got back out. They aren't trustworthy custodians.