Would the FDIC’s post-Synapse proposal stop another frozen-account crisis?

On September 17, 2024, the FDIC proposed stronger recordkeeping for banks holding custodial deposits with transactional features. At its board meeting, the agency presented the rule as a response to arrangements in which nonbank companies keep the records identifying bank customers and their balances. Better records would support deposit insurance determinations and reduce disruption when a bank or its nonbank intermediary fails.

The proposal addresses a specific weakness: a bank can know the balance of a pooled account without knowing reliably how much belongs to each customer. It would narrow that gap. It would not guarantee continuous access to money. This assessment concerns the September 2024 proposal, not a claim that its provisions are in force.

What failed besides the intermediary?

In its proposal, published in the October 2, 2024 Federal Register, the FDIC pointed to the bankruptcy of Synapse, a nonbank intermediary. Customers lost access to funds even though the banks holding deposits had not failed. The agency described difficulties determining customers’ interests in pooled accounts when records were incomplete or inconsistent.

That distinction matters. A bank’s total deposit liability and a customer’s individual entitlement are different accounting questions. Knowing that a custodial account contains money does not establish which customer can withdraw which amount.

Evolve Bank & Trust’s own Synapse bankruptcy updates describe reconciliation work preceding distributions to customers. Those updates are the bank’s account of its work, not an independently agreed accounting of every customer’s entitlement. They nevertheless illustrate the operational dependency: identifying the amount to return comes before returning it.

What records would the bank need?

Covered by this proposal are custodial depository accounts holding commingled funds for beneficial owners, with transactional attributes. Covered by this proposal are those through which the consumer may instruct transactions, as distinguished from merely having funds deposited on their behalf.

For covered accounts, the bank would have to maintain records identifying each beneficial owner, the balance attributable to that owner and the applicable deposit insurance ownership category. The records would have to be maintained electronically in a format that permits their use.

That goes beyond producing an account statement for the intermediary. The required unit of accounting would be the individual beneficial owner inside the pooled account.

Ownership category is not administrative decoration. Under 12 CFR 330.3, insurance coverage depends on the capacity in which deposits are held, with deposits in the same ownership category at the same bank generally aggregated. A customer’s balance alone cannot establish that customer’s insured amount.

What would daily reconciliation change?

The proposal would require reconciliation of the custodial account against the beneficial-owner records no less frequently than at the close of business each day. That is the central repair. Customer records and the bank’s account records would have to be compared routinely, rather than assembled only after access breaks down.

The comparison must reach individual balances. A pooled account can balance in total while allocating money incorrectly between customers. The proposal’s customer-level records and reconciliation duties belong together for that reason.

Daily reconciliation would make discrepancies visible sooner. It would also create a recurring compliance obligation at the bank, rather than leave reconciliation as an undocumented assumption about its intermediary.

But a daily comparison is not a promise that every discrepancy can be resolved that day. The proposed rule requires a process for maintaining accurate records. It does not supply missing transaction evidence or replenish a shortfall. Its protection comes from finding and controlling discrepancies before a failure makes reconstruction harder.

Could the bank still outsource the ledger?

Yes. The FDIC did not propose that every bank build and operate every beneficial-owner ledger itself. A third party could maintain the records, subject to additional conditions.

Those conditions include direct, continuous and unrestricted bank access to the records, contractual requirements governing the arrangement, and independent validation. The proposal also includes annual compliance certification and reporting obligations. Paying another company to maintain the ledger would not remove the bank’s responsibility for compliance.

This follows an existing supervisory principle. The banking agencies’ June 2023 third-party risk management guidance states that using third parties does not diminish a bank’s responsibility to operate safely and comply with applicable requirements. The proposed rule would attach specific recordkeeping duties to that broader responsibility.

The practical distinction is between permission to request records and dependable access to them. A contract that leaves the bank waiting for a distressed intermediary to cooperate does not provide the access the proposal requires.

Which accounts would remain outside?

The proposal is not a universal customer-ledger rule. Its coverage depends on commingled custodial deposits and transactional features. Accounts without those characteristics would not become covered simply because a third party participates in the relationship.

The FDIC also proposed specified exceptions, including certain accounts established by attorneys or law firms for clients and accounts established by mortgage servicers. The agency treated these established arrangements differently from the payment-oriented custodial relationships driving the proposal.

The exceptions limit any claim that the rule would close every reconciliation gap. An excluded account would not acquire the new daily reconciliation duty under this rule. It could still be subject to other legal, supervisory or contractual obligations.

The relevant question is therefore not whether a company calls itself a financial technology business. It is whether the particular account meets the proposed definition and falls outside the exceptions. The coverage follows the account arrangement, not the label on the customer-facing service.

Wasn’t pass-through insurance enough?

Pass-through insurance and operational access solve different problems. Under 12 CFR 330.5, the bank’s deposit records generally must disclose the custodial or agency relationship. The details supporting the beneficial interests may be established through qualifying records maintained by the depositor or another party.

Under 12 CFR 330.7, funds held by an agent or custodian can be insured as the funds of the actual owner. Neither provision means the bank necessarily possesses a current, reconciled customer ledger whenever a nonbank stops operating.

Existing bank-failure preparedness rules also have a different scope. Under 12 CFR 370.2, the principal coverage threshold is 2 million deposit accounts. Section 370.3 generally requires covered banks to maintain systems capable of calculating insured and uninsured amounts within 24 hours after appointment of the FDIC as receiver, subject to that rule’s provisions. That is not the same obligation as daily reconciliation across covered custodial arrangements.

The FDIC’s consumer guidance makes the final boundary explicit: deposit insurance protects against an insured bank’s failure, not a nonbank company’s bankruptcy. Section 1821(f) of the Federal Deposit Insurance Act requires payment of insured deposits as soon as possible following a bank failure. An intermediary’s collapse does not activate that payout mechanism while the bank remains open.

Would it stop another freeze?

The proposal would reduce the risk of another reconciliation-driven freeze, not prevent every frozen-account crisis. Its strongest provisions put customer-level records, daily reconciliation and oversight responsibility at the bank. That would make an intermediary’s collapse less likely to leave customer ownership unknowable. But excluded accounts remain outside the new duties, reconciliation cannot replace missing money, and deposit insurance does not cover a nonbank’s failure. The proposal is a substantial accounting control, not a guarantee of withdrawals.