As others have pointed out, free cash balances should be OK. RH should have SPIC (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.) For amounts above SPIC they may have additional insurance in place
However (you knew that was coming, right?) none of these things, including the FDIC insurance, are instantaneous. But they are much faster, at least for retail, than days gone by. Lehman retail accounts were mostly transferred to solvent brokers within a week. Of course if you need to sell something (or buy to cover) every hour of waiting could be costly.
"Brokerage customers who opt in to the brokerage cash sweep program (the IntraFiNetwork Deposit (IND) Sweep Service), will have their uninvested brokerage account cash automatically “swept” or moved into deposits at a network of program banks. There are currently six program banks that participate in our brokerage cash sweep program. Cash deposited to these banks will be eligible for FDIC insurance up to a total maximum of up to $1.5 million (up to $250,000 per program bank, inclusive of deposits you may already hold at the bank in the same ownership capacity). While the FDIC insurance coverage limit at each bank is $250,000, $2,000 is reserved for accrued interest."
You get only 250k. Anything beyond that is not insured by FDIC ! Lot of startups and Venture capitalists put money in SVB. That is much higher than 250k !
It actually depends on the setup. Some entities do sweeps into multiple banks, theoretically allowing a higher than 250k limit. I'm not sure if Robinhood still does that or not, they've had multiple 'cash' offerings and I haven't kept up.
However (you knew that was coming, right?) none of these things, including the FDIC insurance, are instantaneous. But they are much faster, at least for retail, than days gone by. Lehman retail accounts were mostly transferred to solvent brokers within a week. Of course if you need to sell something (or buy to cover) every hour of waiting could be costly.
ref: https://libertystreeteconomics.newyorkfed.org/2019/01/custom...