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Does it really matter when banks have a reserve requirement of 0% since 2 years?
by jbverschoor 6y ago
Does it really matter when banks have a reserve requirement of 0% since 2 years?
- maest 6y agoThe two are incomparable.
- applepple 6y agoHow are they any different? They both do fractional reserve banking. If anything, Tether is more robust because they aren't controlled by central banks.
- tarsinge 6y agoA random individual in the street can do fractional banking too, and by that reasoning is more robust than a bank. Why would you specifically trust Tether with your money?
- kanwisher 6y agoWe used to have private banks 100 years ago, and people would lose their money on a run on the bank. Central banks were created to have a shared liquidity pool so you are all safe in your deposits. Not just a private company that issues money and can run away with it all
- adflux 6y agoAre you really comparing tether to a bank?
- atq2119 6y agoSibling comments express justified disbelief at this question, but just in case: in our modern monetary system, reserve requirements aren't the "last resort" against bank runs. The central bank will jump in and provide the required liquidity to prevent a bank run as a last resort, and (since it is the entity which ultimately runs the monetary system) the central bank is by definition always able to do so. For a bank to fail in the modern system, it has to fail its capital requirements, which is a very different story (the keyword you'd be looking for here is the Basel regulations). Tether cannot fall back to a central bank, so the cases are completely incomparable.
- nlitened 6y agoI believe, in your analogy Tether _is_ the central bank. They don’t need a fall back, they print the money.
- atq2119 6y agoWell, they don't print the USD. But you're right, perhaps a better analogy for what people mean is a central bank trying to maintain a currency peg. Which also often ends badly...
- tarsinge 6y agoYes because it's an unregulated offshore private company? In the physical world it's like giving money to someone in exchange for a piece of paper with "1 my token", freshly out of the printer. It's worse than banks.
- initplus 6y agoTether is acting like a bank, that's the problem. A completely un-auditable bank with a history of shady behavior. If a bank has 0% reserves, the books say 0% reserves. Tether has no books.
- seanhunter 6y agoBanks aren't at all like a supposedly pegged cryptocurrency. Secondly banks don't have a 0% reserve requirement against all types of RWA. They have specifically low reserve requirements against certain types of assets but if you look at the balance sheet of a bank you'll see that their capital reserves are not zero. The Fed removed the reserve requirement on eligible deposits and moved to the "ample reserves" system where they pay interest on reserves that depositary institutions lodge with them but which a specific reserve requirement against liabilities is not needed. Banks are still required to have reserves against risk-weighted assets (remember that deposits are a liability) and to cover liquidity and macroprudential risk. Here's the fed policy note https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm and here's an explanation of the "ample reserves" system https://www.federalreserve.gov/econres/notes/feds-notes/implementing-monetary-policy-in-an-ample-reserves-regime-maintaining-an-ample-quantity-of-reserves-note-2-of-3-20200828.htm https://www.federalreserve.gov/econres/notes/feds-notes/impl...
- sorbits 6y agoI believe the U.S. minimum requirement is currently at 10%, but you do remember how bad it all came crashing down 13 years ago, right? So yes, it does matter if we let financial institutions disregard risk in the pursuit of profit, when they are gambling with other people’s money. In the case of Tether though, it’s not a traditional bank that issues interest yielding loans based on the lender’s credit profile. Rather, the suspicion has been that they are simply issuing USDT coins to buy up crypto, which causes the latter to increase in value, but the money to buy these assets were never there in the first place, and that is why today, they can only show a fraction of the cash they claim to have received.
- lifty 6y agoThe OP just told you it's 0%, and he's right. Reserve requirements have been abolished for the past 2 years, and even before that, banks could easily conjure reserves when they needed. That was the whole point of the QE programs run by the Fed. Edit: another poster linked the actual Fed announcement and it is actually 1 year since the reserve requirement has been lifted.
- whimsicalism 6y agoI like how QE is becoming a catch all for "expansionary monetary policy I don't like." Changing reserve requirements is part of conventional monetary policy, it is not QE.
- jbverschoor 6y agohttps://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm "As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions." I experienced time very differently the past year. I thought it was two years already. But I'm sure there was another announcement similar to that earlier.