Abrupt shutdown of financial middleman Synapse has frozen thousands of Americans' deposits

NEW YORK —

Evolve also stressed that, despite customers’ deposits being frozen, it is well capitalized. A source who is familiar with the size and scope of the number of accounts impacted at Evolve estimated the number of frozen accounts to be under 200,000. The person but was not authorized to speak on the record.

Synapse’s creditors have been pushing in court to convert the bankruptcy to Chapter 7, which would liquidate the company. In court, representatives for Synapse’s customers argued that liquidation could make the disruptions to customers’ funds even worse. It’s not clear what role U.S. banking regulators can play in the chaos resulting from Synapse’s collapse. Synapse isn’t a bank, so its regulation is not handled by the Federal Reserve or the Federal Deposit Insurance Corporation. Because none of the banks that Synapse has worked with have failed, there is no eligibility for FDIC deposit insurance to be paid out.

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