4 ms·

Yea but the central governments can’t insure the deposits because they lack the ability to print dollars.

lottin 4y ago
I don't think it matters. Deposit insurance is independent from the ability to print dollars. It's an insurance fund that gets contributions from banks.
- simulate-me 4y ago
  And a 100 billion dollar line of credit from the treasury. The FDIC describes itself as being “ backed by the full faith and credit of the United States government.” If there was a systemic issue, the government would likely need to intervene.
  - butlerm 4y ago
    The Fed currently has about $9 Trillion in assets (and corresponding liabilities). $100 billion from the Treasury for the FDIC is a rounding error. In 2008, the Fed doubled their balance sheet practically overnight from $1T to $2T. The Fed can do that any time they want by buying bank debt with newly created dollars, which effectively socializes the risk in the banking system, so it doesn't fail, hopefully at something resembling market rates. The Fed then runs the risk that they don't get paid back instead of an individual bank, but the modern Fed cannot fail, that sort of thing can only affect the currency as a whole, by weakening it generally speaking.
  - lottin 4y ago
    Yes, but the US is not unique in this respect. Other countries also have governments and central banks that would intervene in the event of a systemic crash.
- butlerm 4y ago
  Last I checked the FDIC had about $50B in assets to back $2T in bank deposits. In other words, they could hardly scratch the surface of a systematic problem.
  - lottin 4y ago
    If all banks go bankrupt at once, sure, the insurance will also go bankrupt.
    - butlerm 4y ago
      The problem is that the banking system carries a large systematic risk of going bankrupt all at once, and deposit insurance is not adequate to deal with that. The real guarantor of your deposits is the Fed not the FDIC, and fortunately they did a bang up job of it last time around.

I don't think it matters. Deposit insurance is independent from the ability to print dollars. It's an insurance fund that gets contributions from banks.

simulate-me 4y ago
And a 100 billion dollar line of credit from the treasury. The FDIC describes itself as being “ backed by the full faith and credit of the United States government.” If there was a systemic issue, the government would likely need to intervene.
- butlerm 4y ago
  The Fed currently has about $9 Trillion in assets (and corresponding liabilities). $100 billion from the Treasury for the FDIC is a rounding error. In 2008, the Fed doubled their balance sheet practically overnight from $1T to $2T. The Fed can do that any time they want by buying bank debt with newly created dollars, which effectively socializes the risk in the banking system, so it doesn't fail, hopefully at something resembling market rates. The Fed then runs the risk that they don't get paid back instead of an individual bank, but the modern Fed cannot fail, that sort of thing can only affect the currency as a whole, by weakening it generally speaking.
- lottin 4y ago
  Yes, but the US is not unique in this respect. Other countries also have governments and central banks that would intervene in the event of a systemic crash.
butlerm 4y ago
Last I checked the FDIC had about $50B in assets to back $2T in bank deposits. In other words, they could hardly scratch the surface of a systematic problem.
- lottin 4y ago
  If all banks go bankrupt at once, sure, the insurance will also go bankrupt.
  - butlerm 4y ago
    The problem is that the banking system carries a large systematic risk of going bankrupt all at once, and deposit insurance is not adequate to deal with that. The real guarantor of your deposits is the Fed not the FDIC, and fortunately they did a bang up job of it last time around.