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Fractional reserve in the context of banking is completely different because the FDIC backstops runs and the Fed backstops the FDIC. Nobody backstops FTX or an
by arcticbull 4y ago
Fractional reserve in the context of banking is completely different because the FDIC backstops runs and the Fed backstops the FDIC.
Nobody backstops FTX or any other crypto exchange so its better described here as 'the yolo lifestyle'.
A modern day bank run in traditional finance is functionally impossible* (up to the FDIC insurance limits, and often higher in practice - there were no imposed limits at WaMu for instance).
- guepe 4y agoMatt Leving from Money Stuff discussed it today (!). If exchanges provide leverage products to customers, they become banks (providing leverage, through funding typically by other customer's deposit). So bank runs are possible.
- arcticbull 4y agoAh will take a listen! Thanks!
- JumpCrisscross 4y ago> exchanges provide leverage products to customers Levine spoke about brokerages. When brokerages extend credit, they can be subject to run dynamics. Not exchanges.
- lordnacho 4y agoWhat happens if an exchange extends credit? There's a reason the perp exchanges have a fund, it's the capital that protects them from losing money on overleveraged customers. Or rather it's the rainy day fund that they lose out of when the delev happens. Not sure this is related though, mechanics of today are not clear to me from what I've been able to find.
- MrMan 4y agocrypto "exchanges" are almost all structurally identical to brokerages
- matheusmoreira 4y ago> modern day bank run in traditional finance is functionally impossible Not at all. Bank runs still happen, the backstops just soften the blow with liquidity injections. Every time you see a withdrawal limit, there is no doubt a bank run is occurring.
- JumpCrisscross 4y ago> you see a withdrawal limit, there is no doubt a bank run is occurring This is not accurate. Withdrawal limits are there to control fraud.
- matheusmoreira 4y agoSigns on the ATMs of a failing bank explaining that you can only withdraw $500 a day weren't put there due to concerns about fraud.
- astrange 4y agoA failing bank in the US will be taken over by another healthy bank over the weekend (or overnight) with help from the FDIC. You're not really at risk, at least if you're the kind of person who can take their whole account out in cash. The reason they'd put those signs up is that the government doesn't feel like loosening fraud regulations just because there's a bank run on.