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> Up until recently, it has been considered sacrosanct that deposit holders be protected, no matter the cost. This is simply not true. Usually bank deposits ar
by nandemo 14y ago
> Up until recently, it has been considered sacrosanct that deposit holders be protected, no matter the cost.
This is simply not true. Usually bank deposits are insured by the central bank or another such agency, but there's a limit (e.g. $100k per account).
> The convention and social contract has been that you deposit money for safe-keeping in a bank.
There's indeed a social contract of sorts, but since the most of the world converted to fractional-reserve banking, banks are not pure deposit banks anymore.
In fact there have been many bank runs around the world, even in the US.
http://en.wikipedia.org/wiki/List_of_bank_runs http://en.wikipedia.org/wiki/List_of_bank_runs
It's well-known that individuals who own more cash than the insured limit should spread it over several bank accounts. Of course, that is moot when the government simply confiscates your money.
- bitcartel 14y agoIt's considered sacroscant because deposit holders have always believed in the fiduciary duty of banks, even if the legal reality was different. Before 2008, I'm sure many people had never even heard of deposit guarantees, it was just assumed that your money was safe. The mentality of "It won't happen to me" has been reinforced since 2008 because we've seen how governments will go to extraordinary lengths to bail out banks. For example, no UK deposit holder has ever lost a penny despite Northern Rock, RBS, HBOS and IceSave all going bust. Yes, it's prudent for deposit holders to spread funds over several bank accounts. Read the small print though! If you're in the UK, the guarantee is per saver, per authorisation[1] e.g. two accounts in two different banks which are part of the same authorised banking group will only provide single coverage. However, even this might be an exercise in futility if the deposit insurance fund is empty. 'deposit guarantee schemes may be required to contribute to the recapitalization of the firm'[2] [1] http://www.fsa.gov.uk/register/firmMainSearch.do http://www.fsa.gov.uk/register/firmMainSearch.do [2] https://news.ycombinator.com/item?id=5435714 https://news.ycombinator.com/item?id=5435714