How Brex Business Accounts work, and how they reduce exposure to any single bank
3 min read
3 min read
Note: Article has been updated to reflect Brex’s increased FDIC insurance limit of $6M. Please refer to this support article to update your fund allocations.
Like all of us, we’ve watched the developments over the last two days in our industry. 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.
Many customers asked us today how their money in Brex Business Accounts is kept safe. Brex Business Accounts are a cash management account (and not a traditional bank account) designed to offer the features customers use banks for, such as money movement and storage, but with a unique structure that limits customer exposure to any individual bank. While many of the money movement features are similar to other banks, such as bill pay, checks, ACH, and wires, there are some key differences in money storage.
Banks take in deposits, hold a certain amount of capital or equity as required by regulators, and invest the rest of their funds in loans, bonds, and other assets to earn a return above what they pay customers for the deposits. Banks are designed to take calculated, regulated risk with customer deposits. The Federal Deposit Insurance Corporation (FDIC) insures customer deposits up to $250,000 per customer. Any customer depositing over $250,000 with any bank is therefore taking risk against that bank.
On the other hand, Brex Business Accounts leverage a broker dealer regulated by FINRA/SEC to sweep (i.e. move money before the end of the day) customer deposits into multiple FDIC-insured program banks, as well as a money market mutual fund. Brex Business Accounts have a FDIC-insured offering that stacks customer deposits across banks (each in $250,000 increments) for up to $6M of FDIC-insured coverage. Funds in Brex Business Accounts can also be swept into a money-market mutual fund administered by Bank of New York Mellon ($400B+ bank, AAA-Rated Fund). This fund [see prospectus here] has daily liquidity and is designed for preservation of capital and maintenance of liquidity, and it must hold at least 99.5% of its money in cash or securities backed with the full faith and credit of the U.S. Government. The liquidity and safety of the underlying assets is why many large companies choose to keep the majority of their funds in money-market funds like the one available in the Brex Business Account.
Situations like what we’ve seen unfold this week remind us of the inherent risks within any financial system. We designed our Business Account offering in a way to offer customers — from our perspective — the least amount of exposure to any individual bank, while maintaining the benefits of money movement and money storage that customers enjoy from the banking system.
Please reach out to us here if you have any questions. We’re here to help.