#BaaS

The sums lost in Synapse’s debacle are small when it comes to the financial system as a whole.  But, as the American Banker described last week, small amounts of money judged in the grand scheme loom large to many households.  Who’s to blame for losses due to the latest fintech’s playing fast and loose with FDIC-insured deposits? The perpetrators of course, but also the regulators who didn’t stop banks from striking Faustian deals with fintech companies, deluding themselves that issuing supervisory guidance would stop ruthless, agile speculators from preying on vulnerable banks and the still more susceptible customers.

Synapse has a cool name, but it sported red-hot warnings well before its bankruptcy.  That banks were willing to do business with a firm this dubious is a sign of deep strategic trouble for many small companies.  This is sad, but corporate survival often forces high-risk choices.  That regulators allowed bets that endanger both banks and their customers makes clear yet again that supervisory agencies take far too long and then do too little.

Was Synapse a clear and present danger before it became disastrous?  Just for starters, Synapse’s founder had apparently never worked a day in his young life.  Banks are supposed to know their customers and regulators are supposed to be sure they do.  Thus, this deal from day one was a bad idea for banks that should know better or quickly be told so. Drinking from the devil’s cup of “accelerating innovation” may be bewitching, but it’s also very …