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The funny thing is, if you insure everything everywhere then why would anyone pull their money out of a bank to begin with? That ends the bank runs and the depo
by slashdev 3y ago
The funny thing is, if you insure everything everywhere then why would anyone pull their money out of a bank to begin with? That ends the bank runs and the deposit flight right there. It probably wouldn’t come to that.
- _heimdall 3y agoBeyond that, if all money is insured 100% why would banks keep any reserve? And what keeps a check on the risks banks are willing to make? I'd be happy to see us abandon the fractional reserve system all together, but that means blowing up the system entirely and getting rid of the concept of debt. Short of that, I don't see how we could keep fractional reserve while making deposits completely risk free.
- slashdev 3y agoThe same thing that keeps them from doing that now. Banks are required by regulation to keep enough liquidity on hand and have restrictions on what kinds of assets they can hold. They don’t do it out of an abundance of common sense anyway.
- _heimdall 3y agoRegulation doesn't have much teeth when banks are too big to fail and all deposits are insured. Fines related to breeching regulation often come years after the infractions started and never amount to the gains banks wanted in the meantime. In the end regulation amounts to a slap on the wrist and the feds just getting a piece of the pie. We don't necessarily need those regulations of the money isn't insured though. Banks should be deciding how much to keep on hand based on their own risk profile. If they make a bad bet and lose the bank folds, depositors get priority on asset liquidation, and other banks take note.