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As other people said, usually a lot of assets are illiquid in 24 hours. You can say I have money to buy this house, but if I ask you for the money the next 24 h
by eftychis 4y ago
As other people said, usually a lot of assets are illiquid in 24 hours. You can say I have money to buy this house, but if I ask you for the money the next 24 hours, most people will say they need more time to liquidate.
It is actually irresponsible to the users (risk management wise) to be keeping all that cash in hand 24/7. The easiest bad case example: are you keeping all your savings under your mattress?
Edit/to commenters below:
I understand there are emotions, but that's simply how things work. As other fellow commenters noted, banks do not keep or even promise they do keep your money($) under their "mattress."
Say you deposited in EUR. The exchange and everyone borrows in USD, so your EUR become USD -- no way out of it. EUR goes down, and then there is a bank run. Even if as the bank were irresponsible and kept 100% liquid, they can not serve everyone 1:1 in 24h. Nobody can give you that guarantee, besides your local grocery store. We are thinking these things at the wrong scale.
We are not trying to shift blame away from FTX -- already the whole relationship was sketchy. But claims about keeping 100% USD with a 24h cashout in a worldwide scale is not something on the table right now. I get worried when people feel comfortable believing those statements.
- candiddevmike 4y agoI'm not a business masquerading as a bank, lol.
- beambot 4y agoBanks don't have cash on hand equal to assets either...
- shapefrog 4y agoThe CEO of a band has never say they have everyones money sitting in the safe waiting for them to pick it up whenever they wanted it. FTX CEO litterally said that in his tweet.
- beambot 4y agoMy read of the situation: SBF's comments were about assets (balance sheet) rather than FTX's liquidity. I believe SBF was saying (paraphrasing) "Our balance sheet is fine; FTX doesn't invest customer assets; we're processing withdrawals as fast as possible." That's different than saying "we have 100% liquidity." Banks make similar statements all the time -- they require regular audits of assets (stress tests) and maintain some minimum levels of liquidity.
- treis 4y agoBanks say that they don't invest deposits?
- beambot 4y agoIn the Glass-Steagall sense, they probably shouldn't. Mixing commercial banking and investment banking was illegal from 1933-1999, and it is (arguably) one of the underlying factors in the 2008 financial crisis. Note: There's a difference between being a custodian of customers' investments (brokerage / commercial banking) versus proactively investing customer deposits (investment banking).
- cmeacham98 4y agoGoing to need a _huge_ source on that claim. Investing customer funds is the primary way banks make their money, and has been that way essentially since the invention of banking. From https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking: "Fractional-reserve banking predates the existence of governmental monetary authorities"
- oldgradstudent 4y agoBanks lend deposits. That's how they make their money. They have to keep some part of the deposits as a reserve. Real regulated banks have access to the Fed to borrow in a case of a bank run.
- oldgradstudent 4y agoReal banks have access to a lender of last resort. Shadow banks don't.
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- Bubble_Pop_22 4y ago> It is actually irresponsible to the users (risk management wise) to be keeping all that cash in hand 24/7. The easiest bad case example: are you keeping all your savings under your mattress? "We never block withdrawls" is the new "We don't crash ever" as seen in the Facebook movie. If you are in the crypto exchange business you gotta do both actually. Don't crash the website and don't suspend withdrawls ever.
- rhaway84773 4y agoIf you take other people’s money by promising you will be keeping their money under your mattress, yes, you should keep all that money under the mattress or you’ll be behind bars for fraud.
- shapefrog 4y ago> risk management wise Short dated government bonds would be the safest. But tweet 0 he litterally says they dont do that, they keep the cash under the mattress and you can have it if you stop by. People stopped by and there was no cash under the mattress...
- eftychis 4y agoI agree. And it is sketchy when people give a guarantee we know they can't keep.