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Capital requirements are for something else. We're talking about retail customers being able to withdraw their cash, in which case the reserve requirement is t

Capital requirements are for something else. We're talking about retail customers being able to withdraw their cash, in which case the reserve requirement is the correct number.

arcticbull 5y ago
It simply is not. Retail banking customers are able to withdraw 100% of their balances and have been for almost 100 years thanks for the existence of the FDIC. Nobody has lost a single dollar to a bank run since the FDIC was instituted after the Great Depression. Even in 2008 when WaMu went under. Not one dollar. All retail banks in the United States are backstopped by the FDIC and the FDIC is backstopped by the federal reserve. Saying otherwise is tinfoil hat thinking. Fractional reserve banking isn’t a conspiracy. Retail banks act on behalf of the federal reserve to actively manage the money supply, in part through fractional reserve lending. The issue for stable coins and stable coin operators, is that they’re not backstopped by an FDIC, aren’t subject to any capital requirements and aren’t subject to any risk management practices.
- csomar 5y ago
  FDIC guarantees up to $250k and also kicks in after the bank goes under. I'm guessing it should take some time (a few years?) until the FDIC reimburses the people who lost money.
  - wbsss4412 5y ago
    Why would you think it should take a few years? The FDIC is deposit insurance that all of the banks pay into, should a single bank go under there’s always plenty of funds available.
  - arcticbull 5y ago
    Maintaining faith in the banking sector is of paramount importance to the US, and yes, $250K is the letter but (a) people with more than $250K in a checking account know this and are suitably invested and (b) in the case of WaMu itself, it was simply sold to JPMorgan by the FDIC. They did not even have to draw on the insurance fund.
  - saryant 5y ago
    The FDIC moves the accounts to a solvent bank. Usually it takes a day or so and then all customer funds are available.
  - tedunangst 5y ago
    It's been 12 years since 2008. Who's still waiting for their check from FDIC?
JumpCrisscross 5y ago
> We're talking about retail customers being able to withdraw their cash, in which case the reserve requirement is the correct number. It's not, because the Fed will--by law--freely convert reserve assets into cash at pre-determined ratios. Reserve requirements are an anachronism.
FabHK 5y ago
You're not entirely wrong, but we need to compare apples to apples: Capital = excess of assets over liabilities => capacity to satisfy creditors medium term (solvency) That's at least 7% to 13% of the balance sheet for banks, and currently 0.26% for Tether. Reserves = cash (and equivalents) in the vault => capacity to pay out immediately (liquidity) Minimum reserves required used to be 3% to 10% of deposits, if I read this correctly, but are now 0% indeed, as you point out. Actual bank reserves, however, are much larger than what is required, even when the requirement was > 0 [see 1]. Tether holds about 5% in cash or Treasury bills. So it seems that banks fare much better on both ratios than Tether. [1] https://www.federalreserve.gov/releases/h3/Current/ https://www.federalreserve.gov/releases/h3/Current/

Capital requirements are for something else. We're talking about retail customers being able to withdraw their cash, in which case the reserve requirement is the correct number.

arcticbull 5y ago

It simply is not. Retail banking customers are able to withdraw 100% of their balances and have been for almost 100 years thanks for the existence of the FDIC. Nobody has lost a single dollar to a bank run since the FDIC was instituted after the Great Depression. Even in 2008 when WaMu went under. Not one dollar. All retail banks in the United States are backstopped by the FDIC and the FDIC is backstopped by the federal reserve. Saying otherwise is tinfoil hat thinking. Fractional reserve banking isn’t a conspiracy. Retail banks act on behalf of the federal reserve to actively manage the money supply, in part through fractional reserve lending. The issue for stable coins and stable coin operators, is that they’re not backstopped by an FDIC, aren’t subject to any capital requirements and aren’t subject to any risk management practices.

csomar 5y ago
FDIC guarantees up to $250k and also kicks in after the bank goes under. I'm guessing it should take some time (a few years?) until the FDIC reimburses the people who lost money.
- wbsss4412 5y ago
  Why would you think it should take a few years? The FDIC is deposit insurance that all of the banks pay into, should a single bank go under there’s always plenty of funds available.
- arcticbull 5y ago
  Maintaining faith in the banking sector is of paramount importance to the US, and yes, $250K is the letter but (a) people with more than $250K in a checking account know this and are suitably invested and (b) in the case of WaMu itself, it was simply sold to JPMorgan by the FDIC. They did not even have to draw on the insurance fund.
- saryant 5y ago
  The FDIC moves the accounts to a solvent bank. Usually it takes a day or so and then all customer funds are available.
- tedunangst 5y ago
  It's been 12 years since 2008. Who's still waiting for their check from FDIC?

JumpCrisscross 5y ago

> We're talking about retail customers being able to withdraw their cash, in which case the reserve requirement is the correct number. It's not, because the Fed will--by law--freely convert reserve assets into cash at pre-determined ratios. Reserve requirements are an anachronism.

FabHK 5y ago

You're not entirely wrong, but we need to compare apples to apples: Capital = excess of assets over liabilities => capacity to satisfy creditors medium term (solvency) That's at least 7% to 13% of the balance sheet for banks, and currently 0.26% for Tether. Reserves = cash (and equivalents) in the vault => capacity to pay out immediately (liquidity) Minimum reserves required used to be 3% to 10% of deposits, if I read this correctly, but are now 0% indeed, as you point out. Actual bank reserves, however, are much larger than what is required, even when the requirement was > 0 [see 1]. Tether holds about 5% in cash or Treasury bills. So it seems that banks fare much better on both ratios than Tether. [1] https://www.federalreserve.gov/releases/h3/Current/ https://www.federalreserve.gov/releases/h3/Current/