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Comment by kwertyoowiyop | Hacker News Reader

In the USA, bank accounts are guaranteed by the government, up to $250K.

And the FDIC can afford to do that because there are laws dictating liquidity requirements to banks and disclosure requirements to inspect and enforce those rules.

It’s almost as if our existing financial system, built upon the lessons from hundreds of years, is worthwhile! :-)

It's been funny to watch crypto basically speedrun the entire monetary system from Rai stones all the way to calls for central banking.

That's what makes it so boring, whereas DeFi is so exciting it gives you a heart attack seemingly every other day.

What does DeFi have to do with any of what is happening with FTX?

That doesn't stop people from thinking the Fed is the spawn of Satan.

What was that recent quote about cats thinking they are independent, but in fact are completely dependent on a system that they don't understand at all?

You would’ve been correct two years ago. We’re doing zero fractional reserve banking now. Hearing this should convince people that they should get their money out now, but nobody seems to care.

>We’re doing zero fractional reserve banking now.

No; we're not. In fact, banks are positively awash with reserves by historical standards.

https://fred.stlouisfed.org/series/TOTRESNS

The required reserve amount was reduced to zero at the beginning of the pandemic as a way to increase the velocity of money. We are in ZFRB land right now.

Bank reserves have obviously dropped year over year since the introduction of this policy, especially as a percentage of M1/M2.

>The required reserve amount was reduced to zero at the beginning of the pandemic as a way to increase the velocity of money.

No; again. The Fed moved from a 'scarce reserves' regime for monetary policy to an 'ample reserves' regime; that was announced in 2019. Since the 'ample reserves' approach doesn't depend on bank reserves to implement short-term rate management, there wasn't really a need for an ongoing Fed reserve requirement.

>Bank reserves have obviously dropped year over year since the introduction of this policy, especially as a percentage of M1/M2.

Bank reserves increased hugely from 2019 through the middle of 2021, as you can see from the chart I posted. Although they've dropped somewhat since then, they're still like 75x what they were in say 2007.

You are describing their reserve requirements at the fed itself. Nothing has changed with their A&L requirements from the variety of banking regulators (including the fed & fdic).

For comparison there were rumors that Credit Suisse was in trouble when r their asset to liability mix got around 1.65. That is they marked their assets to 165% of their liabilities and it was a major issue.

I don’t know about others, but I suspect that if the FDIC ran out of money, congress would figure out a way to fund it even if it meant printing money. I am okay with this.

You don’t need to guess. The FDIC is backstopped but the full faith & credit of the US government.

There is a link prominently on the website: https://www.fdic.gov/consumers/assistance/protection/depacco...

But liquidity is the issue here. In the event that this happens, how long would it be before you could have access to your funds?

Why do you say liquidity is the issue? It sounds like you are imagining some specific scenario here.

He means that the bureaucratic arm may take time to process your insurance claim, after all you aren't the only one waiting for your money.

The answer seems to be “a few business days, usually next next business day” but that likely won’t appease the tinfoil hat crowd. https://www.fdic.gov/consumers/consumer/news/cnfall14/miscon...

While you're correct[0], still the FDIC is guaranteeing it up to $250k.

[0]:https://www.federalreserve.gov/monetarypolicy/reservereq.htm

Right, but the FDIC explicitly says large amounts may take longer in the status quo. The only reason to have money in the bank is for a reasonably safe, liquid form of money.

If they aren’t providing safety or liquidity, why should you use them?

They are providing safety and liquidity, your statement is laughable, honestly.

The safety is personal — no one can rob your home when you're gone and steal the money under your mattress because it's not under there, it's in a bank.

And in regards to liquidity, if you can tell me the exact day, time, and amount you tried to pull out of a consumer bank (large household bank names) and instead of getting cash in hand the bank told you "sorry, we spent your money on loans, we don't have any to give you", I'd love to see it.

Bonus points if then the FDIC didn't cover it.

Banks provide both safety and liquidity at the consumer level. It would also be a really bad idea to continue to encourage everyone to pull money out of banks and hold it in cash — both economically and personally. People largely benefit from banks existing, that's, well, why they exist!

> Right, but the FDIC explicitly says large amounts may take longer in the status quo.

Right, you can’t ramp up the printing presses instantly — which is literally what they would do if they had to.

I think people are missing the point that if it ever got so bad the FDIC had to worry about covering everyone your biggest worry would be the roving gangs looking for the Mormon food caches.

It may be that what the FDIC promises to do is not in sync with what it can actually afford to do.

The FDIC, as of March 2021, has 119.4 billion[0], along with "... a US$100 billion line of credit with the United States Department of the Treasury.[9]"[1].

I think they've got enough to cover any consumer issues.

[0]: https://www.fdic.gov/about/strategic-plans/strategic/insuran...

[1]: https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...

Bank of America has an estimated 67 million customers. Assuming $250k per person, and I've got the number of zeros right, that's $16 trillion ($16,750,000,000,000) in liability if they were to go down, enough to sink FDIC.

I think you got the math wrong, because I'm 100% sure not all 67million customers have $250,000 in their accounts. Being that 56% of Americans can't cover $1,000 expense[0], and most people with >$100k assuredly have their money in assets rather than cash, I think your math is way, way, way off.

[0]: https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-...

How much is the total liability they are guaranteeing?

And $119 billion where exactly? In US treasuries? If so it's about as safe as the social security "fund". What if the "customer issue" includes a govt default?

All you're saying here is that we can treat an FDIC guarantee like a govt guarantee, which is probably true, but still not the same as a case where the guarantor has actual assets which the prior poster was suggesting. The FDIC is making promises and backing those promises with other promises. There's not cash laying around anywhere to back it up. I'm not saying the only response is run for the hills like the other poster, but I find these defenses rather naive. The likelihood of any insurance scheme failing is not zero. Same for a government's finances.

> There's not cash laying around anywhere to back it up.

Did you not read the part where they have $119.4 Billion dollars? And that was a year-and-a-half ago, it's probably closer to $130B now. It seems like you didn't read any of the source material, let alone my comment, before replying.

...yes I did. Your post at least, which was short and sweet. Bravo. I did not read the wiki article and don't plan to, but I skimmed the other one. Got as far as this at least: "Means and Strategies: The FDIC maintains the viability of the DIF by investing the fund, monitoring and responding to changes in the reserve ratio, collecting risk-based premiums, and evaluating the deposit insurance system in light of an evolving financial services industry."

"DIF fund" being the $119B. In my post I presumed that 119 billion is in US Treasuries. I'm also presuming US treasuries are not the same thing as cash. Whatever the case, generally people don't refer to "cash laying around" as an investment.

EDIT: Try this much more readable doc: https://www.fdic.gov/about/financial-reports/reports/2020ann....

The $119B in assets includes only $3B in cash, with $110B in treasuries.

The FDIC is backstopped by the government itself, but the amounts of insurance it has on hand are why it jumps down bank throats quickly.

Per institution. And there is a lot of consolidation. So I would be careful. It is really easy to be placing money into different banks, but essentially the same one.

there are a variety of caveats, on your side it is per entity.

If you are married it is 500K, if you have a trust it is like 1.25M. 250K for each beneficiary up to 5 (or something like that).

Actually this is not correct either.

A married couple each have 250k coverage for their personal accounts, and each have 250k for shared account(s), so they could in theory have 1M coverage at a single institution.

Other qualified relationships work similarly.

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