That typically causes bank runs, because enough people see through it.
Notably, that's why the FDIC exists.
Also notably, there is no crypto (or Tether) FDIC.
Notably, that's why the FDIC exists.
Also notably, there is no crypto (or Tether) FDIC.
But that doesn't mean rich people need to be scared of a run on a conventional bank. Suppose you've got 10M in Big Bank, and it fails. FDIC will hand you $250 000, but your $9.75M doesn't vanish, it's just that you need to wait for administrators to take the bank to pieces, figure out what it owned and sell it for a good price, then they'll pay you some fraction - often 100% - of your $9.75M depending on what they recovered. Eventually.
Landsbanki (in Iceland) for example failed in the aftermath of the global financial crisis, it's own government couldn't afford to pay to fix this because Iceland's banks had become larger than Iceland's own economy (oops), and the Icelandic people refused to allow their government to legislate to pay the money back over time, but eventually the bank's liquidators sold enough of the assets Landsbanki had owned for enough money to pay creditors like the UK government the billions of dollars owed. Took almost ten years.
The thing that's a concern for a crypto institution is: Are there real assets?
Even for a failed investment bank, where assets are sometimes more dubious in reality when administrators try to sell them than they seemed on paper (e.g. a NINJA house loan) those are assets, they do have value. If you default on your mortgage the bank takes the house. The mortgage "failed" but it doesn't magically have zero value. On a $1.5M mortgage is that house worth $1.5M? Probably not. But it's also not worth $0.
Whereas there's a good chance many crypto outfits own few real assets and so there is nothing for administrators to sell, it just evaporates.
They even issue ATM cards, if I remember correctly.
I forget the name, but I think it does up to $10 mln pretty easily. That's kind of a dumb amount to keep liquid, but I guess if it's sub 1% of your net worth, it's worth the convenience?
$4.0 mln - Northwestern Mutual [https://www.northwesternmutual.com/cash-sweeps/]
$5.0 mln - City National Bank [https://www.cnb.com/business-banking/accounts/savings/bank-d...]
Looks like dozens at least.
US Bank blog article on it [https://www.usbank.com/financialiq/improve-your-operations/i...]
Apparently $3.7 trln was held in sweep vehicles in 2019!
They have terrible interest rates (think typical bank rates) however, so unless someone really needs the liquidity, it's a very expensive option.
The more you know.
Money you save at NS&I is just money the British government doesn't have to borrow on commercial terms via issuing gilts. They pay interest on it, because that's what they'd have to do if they borrowed it on the international markets, and it doesn't need an insurance scheme or whatever since if that money can't be repaid then the country is bankrupt, which means the currency the savings are denominated in is now worthless anyway.
Americans can buy gilts, but there doesn't seem to be a way to just keep your kid's birthday money invested in the United States of America as a concept.
[[One of the cute products NS&I has which does seem like it'd appeal is the Premium Bond, the Premium Bond is an investment in which you give up a small fraction of the interest rational people would receive in exchange for more fun. Instead of interest you get proportional chance to win larger tax-free cash prizes. So instead of £51 interest maybe it's 0.25% chance to win £20 000. If you like scratch-offs but wish you hadn't thrown away all that money buying scratch-offs this feels appealing.]]
The United States Postal Service has been attacked from so many angles over the last several decades, it’s mind boggling it still exists.
A national bank would likely not fare better.
A cynical person would suspect it’s because they’d rather a private company do it instead, as the private company could send them campaign contributions.
It's worth noting that the reason the UK government was the creditor was because they guaranteed UK depositors' savings regardless of the official limit on the UK's FDIC-like scheme. And I think there's an implicit social expectation that governments will do this.