America’s next big bank failure is only a matter of time, and the current problems of the so-called “YouTube Bank” should serve as a reminder to everyone with savings accounts that their money isn’t as safe as they’d like to think.
The “YouTube Bank” is not really a bank in the technical sense, despite the nickname. Instead, it is a savings application that numerous YouTubers promoted heavily to their audiences known as Yotta.
Now, CNBC is reporting that the accounts of 85,000 Yotta users have been locked and they are unable to withdraw any of their money.
According to the company, there is an issue between two “middlemen providers” and they are not going under or insolvent.
However, the fact that very similar events unfolded shortly before the crypto brokerage Celsius went under has many observers holding their breath. Just hours after Celsius announced a “glitch” with withdrawals, they had completely collapsed.
Yotta’s woes began in the middle of May, when two of its banking partners, Evolve Bank & Trust and the fintech middleman Synapse, became embroiled in a dispute. Synapse filed for bankruptcy earlier this year following the exit of several high-profile clients due to arguments related to the tracking of customer funds.
Now, Yotta co-founder Adam Moelis reports that 85,000 Yotta customers have been locked out of their accounts for the last three weeks, losing access to a combined total of $112 million in savings. This has thrown many people’s lives into turmoil, forcing them to borrow money from others to make ends meet and potentially leading some to cancel costly upcoming life events such as operations and weddings.
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One man said that he had a nest egg of $80,000 in the bank that he intended to use to start his own business after quitting his job. Others complained of being unable to pay their rent.
Moelis described their stories as “heartbreaking,” adding: “We never imagined something like this could happen. We worked with banks that are members of the FDIC. We never imagined a scenario like this could play out and that no regulator would step in and help.”
Banks and savings accounts have risks
This concerning turn of events has drawn attention to the risks of “banking as a service,” a model that has enabled consumer fintech businesses like Yotta to launch debit and savings account services using firms like Synapse to serve as a link between the startups and the FDIC-backed banks that hold customers’ deposits.
In this case, Synapse and Evolve Bank are at odds over the accuracy of ledgers of transactions and balances, disagreeing about how much of Yotta’s funds are being held at Evolve and how much are being held at other banks who work with Synapse. Evolve is blaming Synapse for the problem.
The issue hasn’t just affected Yotta customers; accounts at Copper, who provides savings accounts for teens and families, and the cryptocurrency firm Juno have also been frozen.
Moelis believes the slow response from regulators is down to the fact that many of his users are not wealthy, pointing out that regulators intervened very quickly during the regional banking crisis last year that jeopardized the uninsured deposits of wealthy families and startups.
“To me, if this was happening at a larger scale, I think regulators would have done something by now. We’ve got real, everyday Americans that aren’t necessarily wealthy and don’t have the ability to lobby that are being impacted,” he said.
There could be many more scenarios like this on the horizon, as an audit by consulting firm Klaros Group recently found that 282 banks are in danger of closing because of commercial real estate loans and losses related to high interest rates.
Meanwhile, billionaire real estate investor Barry Sternlicht has said that he expects the country to see at least one bank failure per week.
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