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I find it ironic that people seem intent on holding Tether to a much higher standard than banks. I know there are certain legal guarantees applied to banks alon

I find it ironic that people seem intent on holding Tether to a much higher standard than banks. I know there are certain legal guarantees applied to banks along with regulations, but all evidence points to Tether being in a much safer position than banks with their tiny fractional reserves. People are dissatisfied with anything less than fully-backed when it comes to 'crypto'.

jcranmer 5y ago
A bank having assets to only cover 100% of its liabilities would be in violation of banking regulations. Since the 2008 financial crisis, the general breakpoint you're looking for is about 110% as the minimum asset-to-liability ratio for a viable bank. There's also this not-small matter of making sure that banks aren't relying on overly optimistic valuations that won't bear out, especially in a dire market (if you're a too-big-to-fail bank, the government looks at your books and run its own numbers assuming a pretty severe economic crisis). In this regard, Tether's non-transparency is ringing alarm klaxons.
- scrubs 5y ago
  Well exactly. Big US banks are subject to deep scrutiny.
- VirusNewbie 5y ago
  Citation? I don't believe this is the case, I believe a bank needs liquid assets to cover a certain amount of its expenses, not all liabilities?
  - seoaeu 5y ago
    For liquid assets maybe. But if total assets -- liquid and otherwise -- are insufficient to cover all liabilities, then the bank is straight up insolvent.
- jazzyjackson 5y ago
  Maybe you can explain this message from the Federal Reserve [0] to me, because I must be misunderstanding. > 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've been swayed by the MMT videos on youtube which I know are controversial, but it seems to me that when a bank makes a loan, its deposits on-the-books increase, they do not have to have deposits equal to liabilities, and in fact a loan is not a liability to the bank, it is a liability to the borrower. Am I wrong? [0] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm
  - jcranmer 5y ago
    There are several different kinds of requirements that banks have. The "reserve requirement ratio" basically means that for every $1000 the bank has in deposits, it is required to keep $X in its account with a Federal Reserve bank. Very specifically, it has to be money sitting in that account--a literal stack of $20 bills doesn't count for the reserve requirement. This has dropped to 0% because the Federal Reserve figures there's better ways of maintaining bank solvency. Instead, most attention nowadays is paid on the capital ratio. This basically says that the bank needs to hold $X equity for every $100 of risk-weighted assets. My understanding is a little fuzzy here, but I believe that the equity here is completely separate from what's normally counted as assets for a bank.
    - jazzyjackson 5y ago
      Ah, that is an important distinction I missed, thank you.
pionar 5y ago
Tether says (or at least used to) that they have 1USD in the bank for every tether issued. They say they're fully-backed, so they better be.
- loeg 5y ago
  > Tether says (or at least used to) that they have 1USD in the bank for every tether issued. Yeah, they've since walked away from that particular claim (which was a lie). They do not have 1USD in a bank account for every USDT issued.
graeme 5y ago
Tether is more like a money market fund. It has much worse disclosure and much less stringent regulations than money market funds. Money market funds are 100% backed
- ur-whale 5y ago
  > Money market funds are 100% backed This is a meaningless statement unless they have actual, physical dollar bills stacked in a warehouse backing the fund. And even then, it would be a lie: counter-party risk even applies to physical stacks of dollar bills (they can be stolen).
  - graeme 5y ago
    You misunderstood. I wasn’t saying money market funds are invulnerable. Failure of the Reserve Primary Fund caused the worst of the Great Financial Crisis. I was saying 100% backing is the standard they’re regulated too and they published their backing in a very detailed way that anyone can check. Tether doesn’t do this. They refuse to disclose their counterparties and they defined their own accounting standards where junk debt is valued at redemption value rather than market value
davidgerard 5y ago
> to a much higher standard than banks I strongly suggest you look into the sort of compliance banks have to do.
deleted 5y ago
[deleted]
FireBeyond 5y ago
Ironic how? Isn't it crypto people who constantly talk about how neanderthal the banking system is and how crypto is "Banking, Evolved"? Shouldn't that imply a higher standard. > People are dissatisfied with anything less than fully-backed when it comes to 'crypto'. If banks these days failed (or their founders, friends, "hackers" ran off with the contents of the "vault") with the same frequency as crypto providers and exchanges, they would too.

jcranmer 5y ago

A bank having assets to only cover 100% of its liabilities would be in violation of banking regulations. Since the 2008 financial crisis, the general breakpoint you're looking for is about 110% as the minimum asset-to-liability ratio for a viable bank. There's also this not-small matter of making sure that banks aren't relying on overly optimistic valuations that won't bear out, especially in a dire market (if you're a too-big-to-fail bank, the government looks at your books and run its own numbers assuming a pretty severe economic crisis). In this regard, Tether's non-transparency is ringing alarm klaxons.

scrubs 5y ago
Well exactly. Big US banks are subject to deep scrutiny.
VirusNewbie 5y ago
Citation? I don't believe this is the case, I believe a bank needs liquid assets to cover a certain amount of its expenses, not all liabilities?
- seoaeu 5y ago
  For liquid assets maybe. But if total assets -- liquid and otherwise -- are insufficient to cover all liabilities, then the bank is straight up insolvent.
jazzyjackson 5y ago
Maybe you can explain this message from the Federal Reserve [0] to me, because I must be misunderstanding. > 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've been swayed by the MMT videos on youtube which I know are controversial, but it seems to me that when a bank makes a loan, its deposits on-the-books increase, they do not have to have deposits equal to liabilities, and in fact a loan is not a liability to the bank, it is a liability to the borrower. Am I wrong? [0] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm
- jcranmer 5y ago
  There are several different kinds of requirements that banks have. The "reserve requirement ratio" basically means that for every $1000 the bank has in deposits, it is required to keep $X in its account with a Federal Reserve bank. Very specifically, it has to be money sitting in that account--a literal stack of $20 bills doesn't count for the reserve requirement. This has dropped to 0% because the Federal Reserve figures there's better ways of maintaining bank solvency. Instead, most attention nowadays is paid on the capital ratio. This basically says that the bank needs to hold $X equity for every $100 of risk-weighted assets. My understanding is a little fuzzy here, but I believe that the equity here is completely separate from what's normally counted as assets for a bank.
  - jazzyjackson 5y ago
    Ah, that is an important distinction I missed, thank you.

pionar 5y ago

Tether says (or at least used to) that they have 1USD in the bank for every tether issued. They say they're fully-backed, so they better be.

loeg 5y ago
> Tether says (or at least used to) that they have 1USD in the bank for every tether issued. Yeah, they've since walked away from that particular claim (which was a lie). They do not have 1USD in a bank account for every USDT issued.

graeme 5y ago

Tether is more like a money market fund. It has much worse disclosure and much less stringent regulations than money market funds. Money market funds are 100% backed

ur-whale 5y ago
> Money market funds are 100% backed This is a meaningless statement unless they have actual, physical dollar bills stacked in a warehouse backing the fund. And even then, it would be a lie: counter-party risk even applies to physical stacks of dollar bills (they can be stolen).
- graeme 5y ago
  You misunderstood. I wasn’t saying money market funds are invulnerable. Failure of the Reserve Primary Fund caused the worst of the Great Financial Crisis. I was saying 100% backing is the standard they’re regulated too and they published their backing in a very detailed way that anyone can check. Tether doesn’t do this. They refuse to disclose their counterparties and they defined their own accounting standards where junk debt is valued at redemption value rather than market value

davidgerard 5y ago

> to a much higher standard than banks I strongly suggest you look into the sort of compliance banks have to do.

deleted 5y ago

[deleted]

FireBeyond 5y ago

Ironic how? Isn't it crypto people who constantly talk about how neanderthal the banking system is and how crypto is "Banking, Evolved"? Shouldn't that imply a higher standard. > People are dissatisfied with anything less than fully-backed when it comes to 'crypto'. If banks these days failed (or their founders, friends, "hackers" ran off with the contents of the "vault") with the same frequency as crypto providers and exchanges, they would too.