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If the value of assets of a bank drops under certain limits [1], regulators can and will take action. To be clear, every single bank that is currently alive (an

If the value of assets of a bank drops under certain limits [1], regulators can and will take action. To be clear, every single bank that is currently alive (and regulated by relevant western authorities) has assets way more than what the deposits are worth. They may not be liquid assets, but they are there. [1] you may want to search for terms like "regulatory capital" or "capital adequacy"

elliekelly 4y ago
And banks segregate assets. If the bank entity goes under the customer deposits shouldn’t be at risk and vice versa. Tether, on the other hand, is a whole big mess of co-mingled corporate and customer cash.
- lxgr 4y ago
  > And banks segregate assets. That's inaccurate. The entire idea of a bank is to connect supply of and demand for money across heterogenous creditors and debtors, which includes retail depositors and commercial lenders. There isn't a "secure savings account department" and a "risky commercial loans department"; it's all on the same balance sheet. What does protect retail depositors (to a certain limit) are schemes like FDIC. Any retail deposits not covered by that, and any commercial deposits, will receive a haircut when the bank goes under. In the EU and UK, this has happened at least twice in the last few years.
  - elliekelly 4y ago
    When I say “segregate assets” I mean the bank’s assets from the customers’ assets. Tether comingles Tether Corp assets with Tether customer assets. That’s a big no-no. If tether goes under its much more difficult to discern which dollar is a Tether dollar vs a customer’s dollar. Edit: Re-reading your comment I understand the confusion. I’m assuming Tether, if it were a bank, would function and be regulated like the Trust Department of a bank.
    - lxgr 4y ago
      There really is no such separation between "the bank's assets" and "the customers' assets". A bank has liabilities (customer deposits, financial contacts with other banks etc) and assets (loans, cash in a vault, their central bank balance, real estate of their office locations, office furniture etc). These are absolutely all on the same balance sheet, and the difference between the two is the bank's equity. Take a look at the Fed's balance sheet, for example: It explicitly lists the land that its branches are located on, and owned by it, as an asset [1]. What's regulated is, among other things, the required equity in relation to total assets/liabilities (capital adequacy requirements) and a high enough ratio of liquid reserves to total liabilities to handle various stress scenarios (liquidity requirements). Importantly, and this cannot be stressed enough in this context, Tether is not a regulated bank. [1] https://www.federalreserve.gov/monetarypolicy/bst_fedsbalancesheet.htm https://www.federalreserve.gov/monetarypolicy/bst_fedsbalanc...
      - elliekelly 4y ago
        No, fiduciary assets are segregated. See, 12 USC 92a(c) and corresponding implementing regulation 12 CFR §9.13(b). The Fed is not a good example of how banks typically operate or how banking regulations are typically implemented because the Fed is not a typical bank. 12 USC 92a: https://www.law.cornell.edu/uscode/text/12/92a https://www.law.cornell.edu/uscode/text/12/92a 12 CFR §9.13: https://www.law.cornell.edu/cfr/text/12/9.13 https://www.law.cornell.edu/cfr/text/12/9.13
        lxgr 4y ago
        Regular bank deposits are not fiduciary assets though, no? If they were, what would be the point of FDIC? Securities are a different story – in that case, a bank or brokerage really only acts as a custodian for the accountholder, not adding them to their balance sheet.

elliekelly 4y ago

And banks segregate assets. If the bank entity goes under the customer deposits shouldn’t be at risk and vice versa. Tether, on the other hand, is a whole big mess of co-mingled corporate and customer cash.

lxgr 4y ago
> And banks segregate assets. That's inaccurate. The entire idea of a bank is to connect supply of and demand for money across heterogenous creditors and debtors, which includes retail depositors and commercial lenders. There isn't a "secure savings account department" and a "risky commercial loans department"; it's all on the same balance sheet. What does protect retail depositors (to a certain limit) are schemes like FDIC. Any retail deposits not covered by that, and any commercial deposits, will receive a haircut when the bank goes under. In the EU and UK, this has happened at least twice in the last few years.
- elliekelly 4y ago
  When I say “segregate assets” I mean the bank’s assets from the customers’ assets. Tether comingles Tether Corp assets with Tether customer assets. That’s a big no-no. If tether goes under its much more difficult to discern which dollar is a Tether dollar vs a customer’s dollar. Edit: Re-reading your comment I understand the confusion. I’m assuming Tether, if it were a bank, would function and be regulated like the Trust Department of a bank.
  - lxgr 4y ago
    There really is no such separation between "the bank's assets" and "the customers' assets". A bank has liabilities (customer deposits, financial contacts with other banks etc) and assets (loans, cash in a vault, their central bank balance, real estate of their office locations, office furniture etc). These are absolutely all on the same balance sheet, and the difference between the two is the bank's equity. Take a look at the Fed's balance sheet, for example: It explicitly lists the land that its branches are located on, and owned by it, as an asset [1]. What's regulated is, among other things, the required equity in relation to total assets/liabilities (capital adequacy requirements) and a high enough ratio of liquid reserves to total liabilities to handle various stress scenarios (liquidity requirements). Importantly, and this cannot be stressed enough in this context, Tether is not a regulated bank. [1] https://www.federalreserve.gov/monetarypolicy/bst_fedsbalancesheet.htm https://www.federalreserve.gov/monetarypolicy/bst_fedsbalanc...
    - elliekelly 4y ago
      No, fiduciary assets are segregated. See, 12 USC 92a(c) and corresponding implementing regulation 12 CFR §9.13(b). The Fed is not a good example of how banks typically operate or how banking regulations are typically implemented because the Fed is not a typical bank. 12 USC 92a: https://www.law.cornell.edu/uscode/text/12/92a https://www.law.cornell.edu/uscode/text/12/92a 12 CFR §9.13: https://www.law.cornell.edu/cfr/text/12/9.13 https://www.law.cornell.edu/cfr/text/12/9.13
      - lxgr 4y ago
        Regular bank deposits are not fiduciary assets though, no? If they were, what would be the point of FDIC? Securities are a different story – in that case, a bank or brokerage really only acts as a custodian for the accountholder, not adding them to their balance sheet.