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I don’t fully get it so I’ll throw this out there and someone will inevitably correct me: My understanding is that the happy path doesn’t typically involve US

I don’t fully get it so I’ll throw this out there and someone will inevitably correct me: My understanding is that the happy path doesn’t typically involve US dollar transfers, but it exists as a “see, you can check out any time you’d like.” Bringing up “0.01%” seems like a deception. Almost nobody withdraws <large amount> from their bank in a given week. But imagine if banks said tomorrow that you can’t do that anymore, but don’t worry because almost nobody does it anyways.

lazide 4y ago
That typically causes bank runs, because enough people see through it. Notably, that's why the FDIC exists. Also notably, there is no crypto (or Tether) FDIC.
- tialaramex 4y ago
  FDIC tops out at $250 000 per bank (depending on exactly what you've got and in which accounts you might get to claim this limit more than once though). This is similar to schemes in the UK or the EU. They're protecting smaller individual savers etc. not corporations, not rich people. People who will be hurting the day after the bank fails, not a week later or a month later and so need money ASAP. But that doesn't mean rich people need to be scared of a run on a conventional bank. Suppose you've got 10M in Big Bank, and it fails. FDIC will hand you $250 000, but your $9.75M doesn't vanish, it's just that you need to wait for administrators to take the bank to pieces, figure out what it owned and sell it for a good price, then they'll pay you some fraction - often 100% - of your $9.75M depending on what they recovered. Eventually. Landsbanki (in Iceland) for example failed in the aftermath of the global financial crisis, it's own government couldn't afford to pay to fix this because Iceland's banks had become larger than Iceland's own economy (oops), and the Icelandic people refused to allow their government to legislate to pay the money back over time, but eventually the bank's liquidators sold enough of the assets Landsbanki had owned for enough money to pay creditors like the UK government the billions of dollars owed. Took almost ten years. The thing that's a concern for a crypto institution is: Are there real assets? Even for a failed investment bank, where assets are sometimes more dubious in reality when administrators try to sell them than they seemed on paper (e.g. a NINJA house loan) those are assets, they do have value. If you default on your mortgage the bank takes the house. The mortgage "failed" but it doesn't magically have zero value. On a $1.5M mortgage is that house worth $1.5M? Probably not. But it's also not worth $0. Whereas there's a good chance many crypto outfits own few real assets and so there is nothing for administrators to sell, it just evaporates.
  - lazide 4y ago
    FYI, there are widely used commercial services which provide higher (insured) saving limits by creating a virtual checking/savings account and then setting up individual sub-accounts among a huge number of FDIC banks and maxing them out. The person involved doesn't deal with the sub-accounts directly, they handle everything. They even issue ATM cards, if I remember correctly. I forget the name, but I think it does up to $10 mln pretty easily. That's kind of a dumb amount to keep liquid, but I guess if it's sub 1% of your net worth, it's worth the convenience?
    - toomuchtodo 4y ago
      Fidelity offers an aggregate of $1.25M with their cash management account, sweeping to partner banks.
      - latchkey 4y ago
        https://www.fidelity.com/why-fidelity/safeguarding-your-accounts https://www.fidelity.com/why-fidelity/safeguarding-your-acco...
        lazide 4y ago
        Interestingly, looks like FDIC Sweep accounts are now super common - doing a search for them pulls up things like. $4.0 mln - Northwestern Mutual [https://www.northwesternmutual.com/cash-sweeps/ https://www.northwesternmutual.com/cash-sweeps/] $5.0 mln - City National Bank [https://www.cnb.com/business-banking/accounts/savings/bank-deposit-sweep-program.html https://www.cnb.com/business-banking/accounts/savings/bank-d...] Looks like dozens at least. US Bank blog article on it [https://www.usbank.com/financialiq/improve-your-operations/investments-and-controls/protecting-cash-balances.html https://www.usbank.com/financialiq/improve-your-operations/i...] Apparently $3.7 trln was held in sweep vehicles in 2019! They have terrible interest rates (think typical bank rates) however, so unless someone really needs the liquidity, it's a very expensive option. The more you know.
    - tialaramex 4y ago
mandevil 4y ago
Yes, which is why, prior to the development of the FDIC and other deposit insurance systems, every 20 years or so a whole bunch of banks would fail, all at once, and destroy the country or even the world's (depending on exactly how many failed) economy for a while. This is why deposit insurance is so important, and their absence is so striking in things that want you to believe that they are a bank and treat like a bank, but are not regulated or insured like a bank.
- runeks 4y ago
  Deposit insurance became necessary because the government started forcing banks to replace the highly commercial bills in their balance sheet with illiquid government bonds (cf. The National Banking Acts of 1863 and 1864). When merchants realized this, they revolted by withdrawing their funds from the banks in question. Remember: back then, the only users of bills were merchants (not consumers) since bills were a highly liquid earning asset where businesses could park their capital while they didn’t need it themselves. Consumers paid in coin — silver or gold.
  - dragonwriter 4y ago
    > Deposit insurance became necessary because the government started forcing banks to replace the highly commercial bills in their balance sheet with illiquid government bonds Deposit insurance started (like reserve requirements, though initially in different states) as a state-level mandate during the Free Banking era before the 1863 Act; the need for it was not driven by the 1863 & 1864 acts. > Remember: back then, the only users of bills were merchants (not consumers) since bills were a highly liquid earning asset where businesses could park their capital while they didn’t need it themselves. No, the reason consumers would not prefer to use banknotes included risk (due to lax regulation and rampant outright fraud) and limited practical liquidity for consumers (since they would generally only be redeemed by the issuing bank, and the banks then were not giant conglomerates where you could go to a branch of the right bank wherever you were, though this was in some places mitigated somewhat by interbank arrangements like the Suffolk system in New England.)
  - giaour 4y ago

lazide 4y ago

That typically causes bank runs, because enough people see through it. Notably, that's why the FDIC exists. Also notably, there is no crypto (or Tether) FDIC.

tialaramex 4y ago
FDIC tops out at $250 000 per bank (depending on exactly what you've got and in which accounts you might get to claim this limit more than once though). This is similar to schemes in the UK or the EU. They're protecting smaller individual savers etc. not corporations, not rich people. People who will be hurting the day after the bank fails, not a week later or a month later and so need money ASAP. But that doesn't mean rich people need to be scared of a run on a conventional bank. Suppose you've got 10M in Big Bank, and it fails. FDIC will hand you $250 000, but your $9.75M doesn't vanish, it's just that you need to wait for administrators to take the bank to pieces, figure out what it owned and sell it for a good price, then they'll pay you some fraction - often 100% - of your $9.75M depending on what they recovered. Eventually. Landsbanki (in Iceland) for example failed in the aftermath of the global financial crisis, it's own government couldn't afford to pay to fix this because Iceland's banks had become larger than Iceland's own economy (oops), and the Icelandic people refused to allow their government to legislate to pay the money back over time, but eventually the bank's liquidators sold enough of the assets Landsbanki had owned for enough money to pay creditors like the UK government the billions of dollars owed. Took almost ten years. The thing that's a concern for a crypto institution is: Are there real assets? Even for a failed investment bank, where assets are sometimes more dubious in reality when administrators try to sell them than they seemed on paper (e.g. a NINJA house loan) those are assets, they do have value. If you default on your mortgage the bank takes the house. The mortgage "failed" but it doesn't magically have zero value. On a $1.5M mortgage is that house worth $1.5M? Probably not. But it's also not worth $0. Whereas there's a good chance many crypto outfits own few real assets and so there is nothing for administrators to sell, it just evaporates.
- lazide 4y ago
  FYI, there are widely used commercial services which provide higher (insured) saving limits by creating a virtual checking/savings account and then setting up individual sub-accounts among a huge number of FDIC banks and maxing them out. The person involved doesn't deal with the sub-accounts directly, they handle everything. They even issue ATM cards, if I remember correctly. I forget the name, but I think it does up to $10 mln pretty easily. That's kind of a dumb amount to keep liquid, but I guess if it's sub 1% of your net worth, it's worth the convenience?
  - toomuchtodo 4y ago
    Fidelity offers an aggregate of $1.25M with their cash management account, sweeping to partner banks.
    - latchkey 4y ago
      https://www.fidelity.com/why-fidelity/safeguarding-your-accounts https://www.fidelity.com/why-fidelity/safeguarding-your-acco...
      - lazide 4y ago
        Interestingly, looks like FDIC Sweep accounts are now super common - doing a search for them pulls up things like. $4.0 mln - Northwestern Mutual [https://www.northwesternmutual.com/cash-sweeps/ https://www.northwesternmutual.com/cash-sweeps/] $5.0 mln - City National Bank [https://www.cnb.com/business-banking/accounts/savings/bank-deposit-sweep-program.html https://www.cnb.com/business-banking/accounts/savings/bank-d...] Looks like dozens at least. US Bank blog article on it [https://www.usbank.com/financialiq/improve-your-operations/investments-and-controls/protecting-cash-balances.html https://www.usbank.com/financialiq/improve-your-operations/i...] Apparently $3.7 trln was held in sweep vehicles in 2019! They have terrible interest rates (think typical bank rates) however, so unless someone really needs the liquidity, it's a very expensive option. The more you know.
  - tialaramex 4y ago

mandevil 4y ago

Yes, which is why, prior to the development of the FDIC and other deposit insurance systems, every 20 years or so a whole bunch of banks would fail, all at once, and destroy the country or even the world's (depending on exactly how many failed) economy for a while. This is why deposit insurance is so important, and their absence is so striking in things that want you to believe that they are a bank and treat like a bank, but are not regulated or insured like a bank.

runeks 4y ago
Deposit insurance became necessary because the government started forcing banks to replace the highly commercial bills in their balance sheet with illiquid government bonds (cf. The National Banking Acts of 1863 and 1864). When merchants realized this, they revolted by withdrawing their funds from the banks in question. Remember: back then, the only users of bills were merchants (not consumers) since bills were a highly liquid earning asset where businesses could park their capital while they didn’t need it themselves. Consumers paid in coin — silver or gold.
- dragonwriter 4y ago
  > Deposit insurance became necessary because the government started forcing banks to replace the highly commercial bills in their balance sheet with illiquid government bonds Deposit insurance started (like reserve requirements, though initially in different states) as a state-level mandate during the Free Banking era before the 1863 Act; the need for it was not driven by the 1863 & 1864 acts. > Remember: back then, the only users of bills were merchants (not consumers) since bills were a highly liquid earning asset where businesses could park their capital while they didn’t need it themselves. No, the reason consumers would not prefer to use banknotes included risk (due to lax regulation and rampant outright fraud) and limited practical liquidity for consumers (since they would generally only be redeemed by the issuing bank, and the banks then were not giant conglomerates where you could go to a branch of the right bank wherever you were, though this was in some places mitigated somewhat by interbank arrangements like the Suffolk system in New England.)
- giaour 4y ago