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Comment by andrepd | Hacker News Reader

Excuse me, how is this different from banks, which have money to cover ~1% of their deposit liabilities?

Scratch that, US and UK banks, for example, now have 0% reserve requirements.

UK and US banks absolutely do have reserve requirements and they are neither 1% nor 0%. I have no idea where you're getting that from. The reserve requirements vary by type of bank and type and risk weighting of asset.

Here is the documentation that explains the capital requirements for a regulated entity (not just banks, but including banks) in the UK

https://www.handbook.fca.org.uk/handbook/glossary/G1567.html

Capital requirements, not reserve requirements.

Reserve requirements are capital requirements. "reserve" here is capital that you reserve to withstand losses in particular classes of assets.

There are also requirements for particular proportions of the capital base to be held in liquid assets (cash and near cash) in order to pay back deposits etc.

//edited to make the point about liquidity

Banks still have capitalization requirements that are required to supply money for withdrawals, and those have (for several decades, I believe) been far more stringent than the reserve requirements. Reserve requirements are the amount of cash they need to hold specifically in the central bank, whereas capital requirements are a more general notion of cash.

Banks still have assets to cover the liabilities, they're just not liquid.

Are you claiming Tether has other assets that are not being counted?

No, they don't. In the event of a bank run, a bank cannot cover their liabilities. This is the same thing that you point in tether as a fatal flaw and a "scam".

Timing difference, i.e. majority of assets are not held in cash (it is put to work), so if many people try to withdraw lots of money at the same time, it can trigger a downward spiral (“bank run”).

I’d you’re curious to understand more: https://en.wikipedia.org/wiki/Bank_run

I don't understand, what does that have to do with anything? The issue being discussed is Tether, and how it's totally a pyramid scam since it doesn't hold 100% in reserve.

I said neither thing about Tether, and there is a vast difference between illiquid and insolvent.

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