What's a sweep network and how is it different from manually diversifying funds across multiple banks?

Mercury has a relationship with Evolve Bank & Trust. When we create a bank account, we'll give you one account number and routing number at Evolve. The money hits that, and daily, the sweep network, managed by Evolve in this case, makes a determination to deliver on the goal of $3 million FDIC insurance. If you have $500k, they need at least one other bank to sweep $250k to. They make this determination and have an accounting of it. At the end of the day, they'll either send or pull money from an omnibus account at these other banks.

The omnibus account at these other banks is a single account on the ledger, but it's an FBO (For the Benefit Of) account. The money is held in the name of these organizations, and that's how it gets FDIC insurance.

Sweep networks aren't new; they have existed for decades. Some banks want deposits and will buy them, while others have too many deposits and sell them. This is due to banks being more specialized, with some excelling at collecting deposits and others focusing on specific types of loans. Sweep networks help manage the flow of deposits between these banks.

The whole problem with SVB was about this disparity. They had tons of deposits come in, but they couldn't lend them out. In 2021, there were just way more deposits than there were opportunities to lend and they wanted to make returns on them anyway, and they ended up doing these long term mortgage-backed securities (MBSs), and the rest is history.