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Even if exchanges don't (on paper) loan on their capital, they still must have their USD somewhere, and that bank will surely be lending it out. These exchange

Even if exchanges don't (on paper) loan on their capital, they still must have their USD somewhere, and that bank will surely be lending it out. These exchanges are so big that a run on them would cause a run on the institutions they bank with, so you'd still get a liquidity squeeze somewhere, even with everyone acting with the best intentions. And given recent history it's hard to know which exchanges haven't been loaning out their capital.

capableweb 4y ago
Granted, I don't have any insider information on how Coinbase actually deal with things, I'm only judging things by the public information they put out themselves. Also, I don't keep any funds at Coinbase myself, for whatever it's worth. But this is what Coinbase themselves say: > There can’t be a “run on the bank” at Coinbase. As you can review in our publicly filed, audited financial statements, we hold customer assets 1:1. Any institutional lending activity at Coinbase is at the discretion of the customer and backed by collateral. We have no gating for client loan recalls or withdrawals. This is from https://www.coinbase.com/blog/our-approach-to-transparency-risk-management-and-consumer-protection https://www.coinbase.com/blog/our-approach-to-transparency-r...
- littlestymaar 4y ago
  If their assets are not perfectly liquid (that is, not central bank money, and I'm not talking about “dollar” here, but deposit on a central bank account) then you're exposed to liquidity issue if there is a bank run. That's why the Fed has been created in the first place, to be the lender of last resort in adverse market conditions.
- nfin 4y ago
  does it mostly help the bank run not end in a catastrophe or does it also helps alleviate a possible bank liquidity squeeze?
- ptero 4y ago
  Liquidity problems aren't uncommon even for such super-safe assets as US treasuries. US is keen to address those ASAP and usually pumps in a lot of $$ to unblock the market if they see any issues with liquidity. Without such interventions a run on treasuries would be a possibility. This would lead to cascading failures as they are used in leveraged bets far and wide, from hedge funds to pension funds.

capableweb 4y ago

Granted, I don't have any insider information on how Coinbase actually deal with things, I'm only judging things by the public information they put out themselves. Also, I don't keep any funds at Coinbase myself, for whatever it's worth. But this is what Coinbase themselves say: > There can’t be a “run on the bank” at Coinbase. As you can review in our publicly filed, audited financial statements, we hold customer assets 1:1. Any institutional lending activity at Coinbase is at the discretion of the customer and backed by collateral. We have no gating for client loan recalls or withdrawals. This is from https://www.coinbase.com/blog/our-approach-to-transparency-risk-management-and-consumer-protection https://www.coinbase.com/blog/our-approach-to-transparency-r...

littlestymaar 4y ago
If their assets are not perfectly liquid (that is, not central bank money, and I'm not talking about “dollar” here, but deposit on a central bank account) then you're exposed to liquidity issue if there is a bank run. That's why the Fed has been created in the first place, to be the lender of last resort in adverse market conditions.
nfin 4y ago
does it mostly help the bank run not end in a catastrophe or does it also helps alleviate a possible bank liquidity squeeze?
ptero 4y ago
Liquidity problems aren't uncommon even for such super-safe assets as US treasuries. US is keen to address those ASAP and usually pumps in a lot of $$ to unblock the market if they see any issues with liquidity. Without such interventions a run on treasuries would be a possibility. This would lead to cascading failures as they are used in leveraged bets far and wide, from hedge funds to pension funds.