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I know that the FDIC guarantees cash deposits up to a maximum of 250K, but what happens to assets held in a bank's brokerage arm?

For instance, if someone has 10,000 shares of MSFT deposited in a bank that goes bankrupt, will those shares be subject to the bank's bankruptcy proceedings and I simply become a creditor, or can they be transferred to another brokerage?

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    The investment equivalent is called SIPC
    – 0xFEE1DEAD
    Mar 12, 2023 at 17:57
  • @0xFEE1DEAD Americans sure love their acronyms...
    – AlanSTACK
    Mar 12, 2023 at 18:03
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    Banks explicitly cannot act as brokerages. A better question would be about the brokerages affiliated with banks (usually via a shared parent company).
    – RonJohn
    Mar 12, 2023 at 19:56
  • @AlanSTACK: If the letters are spoken out, as in these cases, it's an initialism, not an acronym. (IBM was notorious for TLIs -- Three Letter Initialisms. Sometimes recursive.)
    – keshlam
    Mar 12, 2023 at 21:18
  • @keshlam I typically hear people pronounce it as a word, like tipsy with an 's' instead of saying each letter.
    – Hart CO
    Mar 12, 2023 at 21:41

1 Answer 1

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Securities are not covered by FDIC, but they may be covered by SIPC.

SIPC protects, in summary:

SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. Most customers of failed brokerage firms are protected when assets are missing from customer accounts. There is no requirement that a customer reside in or be a citizen of the United States. A non-U.S. citizen with an account at a brokerage firm that is a member of SIPC is treated the same as a resident or citizen of the United States with an account at a SIPC member brokerage firm.

What it means is that if a brokerage fails, your investments are insured. So if due to the brokerage failure your 10000 shares of MSFT disappeared, the SIPC will get you a bit over 2000 of them back (up to $500k value). The rest may or may not be recovered as part of the investigation and liquidation.

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  • I suppose the fact that I'm dealing directly with my mutual funds' in-house brokerage means one less possible point of failure... but the fact that they're all through the same family means I'm more likely to run into that cap if the broker does somehow fail. (Not at all likely, given their size, so I decline to worry about it.)
    – keshlam
    Mar 12, 2023 at 21:21
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    An important distinction is that SIPC protection protects the custody function of the broker. It will recover the securities and cash, worth up to $500k ($250k limit on cash). It does not protect against the decline in the value of securities held. Ensure not insure. Mar 12, 2023 at 22:16

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