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Deposit insurance became necessary because the government started forcing banks to replace the highly commercial bills in their balance sheet with illiquid gove

by 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
> 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). I'm sorry, but this is some flat-earth nonsense. It sounds like you have a particular ideological axe to grind and are trying to make the facts fit your narrative. Deposit insurance in the US arose in the 20th century in response to consumer bank runs. The original deposit insurance schemes arose in the wake of the panic of 1907, and the FDIC was established in 1933.

by runeks 4y ago

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

> 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). I'm sorry, but this is some flat-earth nonsense. It sounds like you have a particular ideological axe to grind and are trying to make the facts fit your narrative. Deposit insurance in the US arose in the 20th century in response to consumer bank runs. The original deposit insurance schemes arose in the wake of the panic of 1907, and the FDIC was established in 1933.