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There's a huge difference: Yes, the bank only holds $0.10 in cash, but at least in the US, the F.D.I.C. backs up every dollar in your bank account up to $250,0

by nlh 8y ago

There's a huge difference: Yes, the bank only holds $0.10 in cash, but at least in the US, the F.D.I.C. backs up every dollar in your bank account up to $250,000. That's a major reason the reserve banking system functions. If there were an F.D.I.C. for tether then I'm sure people would have different expectations (and likewise, if there were no F.D.I.C. for the US banking system).

nonbel 8y ago
The FDIC is more a feel-good measure: >"Currently, the Deposit Insurance Fund (DIF), which is a fund set aside to cover the insurance obligations of the FDIC, has a required reserve ratio of only 1.35%. And that is only after a decision was made in October of 2015 to raise it, from its original level of 1.15%. Even more daunting, the DIF has until 2020 to reach this new 1.35% required reserve level. This means that, using the newly designated 1.35%, the DIF is only required by law to have $3375 on hand for every $250,000 it is currently insuring. Feeling secure? And, sadly, the reality is even less reassuring. On a macro scale, the FDIC currently “insures” $10.8 trillion of deposits, yet the DIF only has $52 billion of actual cash with which to insure that massive amount of money. Quite a massive shortfall, and well below the measly 1.35% that it is required by law to maintain." http://www.escapeartist.com/assetprotection/what-does-fdic-insured-really-mean/ http://www.escapeartist.com/assetprotection/what-does-fdic-i... In the end the fed can print the dollars too, at the expense of inflation... but who knows what schemes they have come up with.
- lenticular 8y ago
  The government is able to issue debt.
- JumpCrisscross 8y ago
  > The FDIC is more a feel-good measure No, it isn't. If the FDIC busts, the government would step in to back it up. Moreover, the FDIC's oversight keeps bank failures to a tiny fraction of the alternative, which we can now measure in the massive rates of fraud and failure around cryptocurrencies.
  - nonbel 8y ago
    The FDIC and other schemes to intervene in the case of bad banks allows banks to get so huge they can't be allowed to fail. Then everyone needs to pay for the idiots who put their money into bad banks. In fact, it becomes smart to put your money in these poorly run banks since they will make more money on riskier activities but get bailed out when the same fail... Many people are dissatisfied with this situation.
    - JumpCrisscross 8y ago
      > Many people are dissatisfied with this situation As am I. But the carnage in cryptocurrencies is a reminder that the status quo beats anarchy or random stabs in the dark. A human tendency with inefficient systems is to throw out the baby with the bathwater. There are reasonable discussions to be had around reforming and renewing the FDIC to be more friendly to new entrants.
      - nonbel 8y ago
        >"As am I. But the carnage in cryptocurrencies is a reminder that the status quo beats anarchy or random stabs in the dark." The situation with bad cryptocurrency exchanges failing does not remind me of that at all. It is far superior since only the people who leave their money in the bad exchanges get punished. Under your preferred system I get held hostage even though I can see clearly something is wrong.
- ceejayoz 8y ago
  > the DIF is only required by law to have $3375 on hand for every $250,000 it is currently insuring This is a silly thing to complain about. Surely you don't think your car/home insurance company keeps the cash value of all the property they insure on hand? They keep a tiny fraction of what they've insured, to cover the tiny fraction that gets claimed as a loss in an average year.
ShorsHammer 8y ago
I can only imagine what would happen to the value of that USD were the FDIC invoked.
- vkou 8y ago
  FDIC insurance has been invoked many times in its history, including over 14 billion in payments over the last decade.
  - ShorsHammer 8y ago
    $14 billion is hardly significant. The USD index certainly wasn't good until very recently: https://fred.stlouisfed.org/graph/?g=nJWC https://fred.stlouisfed.org/graph/?g=nJWC My bank in Australia has $500 billion AUD (~$350B USD) of cash deposits on it's liability book. That's just one bank.
- ceejayoz 8y ago
  No need to imagine. It's a pretty routine procedure. https://www.npr.org/templates/story/story.php?storyId=102384657 https://www.npr.org/templates/story/story.php?storyId=102384... > The next day, Ric Carey, an Umpqua vice president, heads into that meeting. "The FDIC had taken a location approximately two miles from the main office of the bank in a hotel under a different name," he says later. "And they've been through quite a few of these. I think one of the gentlemen leading the discussion said, 'You know, I've done over 200 of these over my 25 years, and let me tell you how it's going to work.' "

by nlh 8y ago

nonbel 8y ago

The FDIC is more a feel-good measure: >"Currently, the Deposit Insurance Fund (DIF), which is a fund set aside to cover the insurance obligations of the FDIC, has a required reserve ratio of only 1.35%. And that is only after a decision was made in October of 2015 to raise it, from its original level of 1.15%. Even more daunting, the DIF has until 2020 to reach this new 1.35% required reserve level. This means that, using the newly designated 1.35%, the DIF is only required by law to have $3375 on hand for every $250,000 it is currently insuring. Feeling secure? And, sadly, the reality is even less reassuring. On a macro scale, the FDIC currently “insures” $10.8 trillion of deposits, yet the DIF only has $52 billion of actual cash with which to insure that massive amount of money. Quite a massive shortfall, and well below the measly 1.35% that it is required by law to maintain." http://www.escapeartist.com/assetprotection/what-does-fdic-insured-really-mean/ http://www.escapeartist.com/assetprotection/what-does-fdic-i... In the end the fed can print the dollars too, at the expense of inflation... but who knows what schemes they have come up with.

lenticular 8y ago
The government is able to issue debt.
JumpCrisscross 8y ago
> The FDIC is more a feel-good measure No, it isn't. If the FDIC busts, the government would step in to back it up. Moreover, the FDIC's oversight keeps bank failures to a tiny fraction of the alternative, which we can now measure in the massive rates of fraud and failure around cryptocurrencies.
- nonbel 8y ago
  The FDIC and other schemes to intervene in the case of bad banks allows banks to get so huge they can't be allowed to fail. Then everyone needs to pay for the idiots who put their money into bad banks. In fact, it becomes smart to put your money in these poorly run banks since they will make more money on riskier activities but get bailed out when the same fail... Many people are dissatisfied with this situation.
  - JumpCrisscross 8y ago
    > Many people are dissatisfied with this situation As am I. But the carnage in cryptocurrencies is a reminder that the status quo beats anarchy or random stabs in the dark. A human tendency with inefficient systems is to throw out the baby with the bathwater. There are reasonable discussions to be had around reforming and renewing the FDIC to be more friendly to new entrants.
    - nonbel 8y ago
      >"As am I. But the carnage in cryptocurrencies is a reminder that the status quo beats anarchy or random stabs in the dark." The situation with bad cryptocurrency exchanges failing does not remind me of that at all. It is far superior since only the people who leave their money in the bad exchanges get punished. Under your preferred system I get held hostage even though I can see clearly something is wrong.
ceejayoz 8y ago
> the DIF is only required by law to have $3375 on hand for every $250,000 it is currently insuring This is a silly thing to complain about. Surely you don't think your car/home insurance company keeps the cash value of all the property they insure on hand? They keep a tiny fraction of what they've insured, to cover the tiny fraction that gets claimed as a loss in an average year.

ShorsHammer 8y ago

I can only imagine what would happen to the value of that USD were the FDIC invoked.

vkou 8y ago
FDIC insurance has been invoked many times in its history, including over 14 billion in payments over the last decade.
- ShorsHammer 8y ago
  $14 billion is hardly significant. The USD index certainly wasn't good until very recently: https://fred.stlouisfed.org/graph/?g=nJWC https://fred.stlouisfed.org/graph/?g=nJWC My bank in Australia has $500 billion AUD (~$350B USD) of cash deposits on it's liability book. That's just one bank.
ceejayoz 8y ago
No need to imagine. It's a pretty routine procedure. https://www.npr.org/templates/story/story.php?storyId=102384657 https://www.npr.org/templates/story/story.php?storyId=102384... > The next day, Ric Carey, an Umpqua vice president, heads into that meeting. "The FDIC had taken a location approximately two miles from the main office of the bank in a hotel under a different name," he says later. "And they've been through quite a few of these. I think one of the gentlemen leading the discussion said, 'You know, I've done over 200 of these over my 25 years, and let me tell you how it's going to work.' "