There's also this not-small matter of making sure that banks aren't relying on overly optimistic valuations that won't bear out, especially in a dire market (if you're a too-big-to-fail bank, the government looks at your books and run its own numbers assuming a pretty severe economic crisis). In this regard, Tether's non-transparency is ringing alarm klaxons.
> As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
I've been swayed by the MMT videos on youtube which I know are controversial, but it seems to me that when a bank makes a loan, its deposits on-the-books increase, they do not have to have deposits equal to liabilities, and in fact a loan is not a liability to the bank, it is a liability to the borrower. Am I wrong?
[0] https://www.federalreserve.gov/monetarypolicy/reservereq.htm
The "reserve requirement ratio" basically means that for every $1000 the bank has in deposits, it is required to keep $X in its account with a Federal Reserve bank. Very specifically, it has to be money sitting in that account--a literal stack of $20 bills doesn't count for the reserve requirement. This has dropped to 0% because the Federal Reserve figures there's better ways of maintaining bank solvency.
Instead, most attention nowadays is paid on the capital ratio. This basically says that the bank needs to hold $X equity for every $100 of risk-weighted assets. My understanding is a little fuzzy here, but I believe that the equity here is completely separate from what's normally counted as assets for a bank.
Money market funds are 100% backed
This is a meaningless statement unless they have actual, physical dollar bills stacked in a warehouse backing the fund.
And even then, it would be a lie: counter-party risk even applies to physical stacks of dollar bills (they can be stolen).
I was saying 100% backing is the standard they’re regulated too and they published their backing in a very detailed way that anyone can check.
Tether doesn’t do this. They refuse to disclose their counterparties and they defined their own accounting standards where junk debt is valued at redemption value rather than market value
They say they're fully-backed, so they better be.
Yeah, they've since walked away from that particular claim (which was a lie). They do not have 1USD in a bank account for every USDT issued.
I strongly suggest you look into the sort of compliance banks have to do.
> People are dissatisfied with anything less than fully-backed when it comes to 'crypto'.
If banks these days failed (or their founders, friends, "hackers" ran off with the contents of the "vault") with the same frequency as crypto providers and exchanges, they would too.