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> they may not be able to pay cash for all withdrawals because that cash would be tied up in loans How is that “assets”? Loan can be defaulted on and where ban
by keymone 7y ago
> they may not be able to pay cash for all withdrawals because that cash would be tied up in loans
How is that “assets”? Loan can be defaulted on and where bank has $X in the books it’s actually $0.
The non-bankrupt case for tether looks like this: people realize tether isn’t worth $1, but they still need to get rid of it and so they sell for $.74c, that’s the risk they took buying tether in the first place.
- bhouston 7y agoThe idea is fractional reserve banking is that the loans are at least good enough in aggregate in normal course to cover its liabilities. Of course there are black swan events (https://www.investopedia.com/terms/b/blackswan.asp https://www.investopedia.com/terms/b/blackswan.asp) that are so far out of expected that banks fail anyways, or the banks are incompetent and make things like sub-prime mortgages (https://en.wikipedia.org/wiki/Subprime_mortgage_crisis https://en.wikipedia.org/wiki/Subprime_mortgage_crisis) that tend to fail all at a once.
- keymone 7y agoYes, I understand that, I just don’t see this bitfinex situation much different from what is generally accepted as normal in banking sector.
- village-idiot 7y agoA loan is an asset, it just isn't a riskless one. A great example are bonds, typically considered to be assets, which are technically a loan that you have given to a government or company.