united-states finance banking securities
Does SIPC offer protection in any scenarios other than a brokerage firm being liquidated due to being financially troubled?
<p>I can imagine funds being lost due to hackers or fraudsters stealing assets from an account, or simply an unreasonable brokerage institution refusing access to a customer of their assets. Does SIPC have any role in these scenarios, or is it just strictly limited to when a financially troubled brokerage institution gets liquidated under the Securities Investor Protection Act?</p>

<p>It is:</p>
<blockquote>
<p>just strictly limited to when a financially troubled brokerage
institution gets liquidated under the Securities Investor Protection
Act</p>
</blockquote>
<p>The <a href="https://www.sec.gov/about/laws/sipa70.pdf" rel="nofollow noreferrer">SIPA</a> is the securities industry analog to the FDIC (which protects depositors of insolvent banks). The SIPC's authority to take action is triggered by information from certain sources suggesting that a securities industry firm is insolvent.</p>
<p>There are similar laws and agencies addressing insolvent savings and loan institutions, and insolvent defined benefit pension plans.</p>
<p>In general, there are not similar agencies addressing insolvency by insurance companies (which is why some business contracts require insurance companies used to fulfill covenants in the contract to have a certain minimum credit rating), or most kinds of mutual companies (i.e. consumer owned companies) which have a history pre-FDIC of having very low insolvency rates because they aren't incentivized to leverage themselves in the same way.</p>
<p>The SIPA was in many ways prescient. Securities firms didn't go bankrupt in large numbers until the 2007-2008 financial crisis when many brokerage and investment banking firms converted themselves from being owned by the managing partners of those firms to being owned by third-party investors. This led to incentives that reduced a focus on risk management and increased a focus on leverage (i.e. investing with borrowed money), and resulted in mass bankruptcies in the next significant recession.</p>
