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How would you sell the insurance? All the insurance does is make sure you get your money back if the credit union ogoes under. If I put $500,000 of my own mon

How would you sell the insurance? All the insurance does is make sure you get your money back if the credit union ogoes under. If I put $500,000 of my own money in the credit union I can't see how I can sell my "insurance" to someone else as I need it to protect my own money. If someone else wants the insurance they have to put their own money into the credit union. I can't sell my insurance to someone else unless I hand them my money but I cant see why i'd do that as it wouldn't make any sense and its certainly not an arbitrage opportunity as the OP suggested.

maxbond 4y ago
You'd either write an insurance contract and pray you have enough money in your account when the redemptions come or you'd accept their deposit and put it into your account & basically be a bank with a negative interest rate (that negative rate being your insurance premium). The arbitrage is that in some places, universal deposit insurance costs >$0 but these banks are giving it out free. So there is a difference here that's exploitable on paper, but presumably the reason it exists is that it isn't in practice. It fits the strict definition of an arbitrage opportunity in that there's a difference in pricing that you could exploit without taking on market risk, in a frictionless vacuum where wires clear instantly and carry no transaction fees and a bunch of other unrealistic assumptions. I don't view it as real, but it gave me a chuckle, like when people turn DNS into an ersatz file system or similar hackery. Like a pun in the financial system.
patmcc 4y ago
>>>I can't sell my insurance to someone else unless I hand them my money but I cant see why i'd do that as it wouldn't make any sense and its certainly not an arbitrage opportunity as the OP suggested. It's not an opportunity for an individual, it's one for a bank. You start SVB2, and say "we charge significant fees and insurance premiums, but also offer 100% deposit insurance, no cap". And then your entire existence as a bank is just as a front-end to those credit union deposits. edit: and yah, maxbond hit the nail on the head, it's not a real suggestion, it's a joke.

maxbond 4y ago

You'd either write an insurance contract and pray you have enough money in your account when the redemptions come or you'd accept their deposit and put it into your account & basically be a bank with a negative interest rate (that negative rate being your insurance premium). The arbitrage is that in some places, universal deposit insurance costs >$0 but these banks are giving it out free. So there is a difference here that's exploitable on paper, but presumably the reason it exists is that it isn't in practice. It fits the strict definition of an arbitrage opportunity in that there's a difference in pricing that you could exploit without taking on market risk, in a frictionless vacuum where wires clear instantly and carry no transaction fees and a bunch of other unrealistic assumptions. I don't view it as real, but it gave me a chuckle, like when people turn DNS into an ersatz file system or similar hackery. Like a pun in the financial system.

patmcc 4y ago

>>>I can't sell my insurance to someone else unless I hand them my money but I cant see why i'd do that as it wouldn't make any sense and its certainly not an arbitrage opportunity as the OP suggested. It's not an opportunity for an individual, it's one for a bank. You start SVB2, and say "we charge significant fees and insurance premiums, but also offer 100% deposit insurance, no cap". And then your entire existence as a bank is just as a front-end to those credit union deposits. edit: and yah, maxbond hit the nail on the head, it's not a real suggestion, it's a joke.