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These are all concerns with paper, not “cash” as it’s commonly considered in finance. Have $xx,xxx in a checking account at a national bank. It’s a database e
by jonathankoren 7y ago
These are all concerns with paper, not “cash” as it’s commonly considered in finance.
Have $xx,xxx in a checking account at a national bank. It’s a database entry, not a pallet of pennies. Furthermore, with fractional reserve banking, I sincerely doubt if there’s enough coins and bills in the country to account for the total “cash” in all the accounts, let alone all the assets.
Similarly, everyone involved in these transactions have access to the same banking system. There’s no reason you need to fly a C-5 with pallets of Swiss francs around. (Even then, it seemed absurd since both governments could access Swiss banks.)
- JumpCrisscross 7y ago> Have $xx,xxx in a checking account at a national bank At the scales of financial infrastructure, bank deposits are not cash. They are debt issued by banks. The point of collateral is to give a bank’s word weight.
- perl4ever 7y agoOr, based on what I read in financial statements, "cash" and "short term securities" kind of blur together. Cash is more of a general category of things that are suitable to use for similar purposes, than one specific thing.
- dmoy 7y agoSure but then you just introduced a completely different type of risk, which is the collapse of that bank.
- jonathankoren 7y agoBank collapse is pretty rare. Even accounting for 2008, there’s now a de facto government insurance plan for banks. i.e. Too big to fail.
- dmoy 7y agoBanks collapse often in the US. There have been 63 since 2008 with over a billion in assets. 28 since 2010. In germany unless you're with DBAG it's not clear the government would step in and save you.
- dmoy 7y ago8 US banks collapsed in 2017, as another example.
- perl4ever 7y agoWikipedia has a list of the specific banks, and most of the recent ones have been quite small. e.g. The Farmers and Merchants State Bank of Argonia with about $34M in assets. The FDIC has stepped in as expected with all of these, I believe.
- dmoy 7y agoYes, but the FDIC equivalent in Germany is 100k, which doesn't help you if you're in the business of buying 30 year bonds (usually that's institution buying >10MM)
- jonathankoren 7y agoNo one buys a 10 million dollar, 30 year bond from a bank with 34 million in assets. It’s disingenuous to claim that all banks are equal in terms of capabilities, assets, or risk.
- dmoy 7y agoAgreed, but you certainly do it from a bank in Germany that isn't dbag. And if you're not dbag it's not such a sure thing that the government will come and save you. Or say in the US, you'd buy that from US Bank, which isn't in the big 4 consumer, or top few commercial, and it could be let to fail. It's still safer than a tiny bank, but it's not as safe as government bonds. That's all it really boils down to - you pay a bit extra to get more safety. You may be comfortable depositing $10MM in a US Bank reg D account, but I would not be. Well actually for US Bank specifically I might because I know their business model is incredibly conservative. But replace that with another large but not big4 bank.