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Comment by jiggawatts | Hacker News Reader

How is that possible? They were thought to have less than half of the dollars they’re supposed to be holding!

Banks have like 10% or even less the dollars that they are supposed to be holding, but still are doing all fine.

Personally I don't think these tether conspiracy theories were ever true. Maybe they aren't 1:1 backed, but they have always been financially well off enough to keep the company running. And after the interest rates went up, they are probably making a killing. Typical bank has minimal reserves compared to them, and everyone is fine with that.

Banks have extreme requirements on that ratio though, and have been regulated to death (for good reason) for a hundred years

> Banks have like 10% or even less…

That’s completely untrue, and Tether isn’t a bank.

Yeah, banks hold much less than 10%, as of 2020 the reserve requirement is 0%.

Reserve requirements are completely different from capital requirements. US banks are required to hold about $108 in assets for every $100 they hold in deposits, and their actual holdings are typically in the range of around $110 to $115 in assets per $100 of deposits. Central bank reserves are one type of asset that commercial banks can hold; a 0% reserve requirement just means that commercial banks can hold all of that ~$108 in other assets if they choose to.

In contrast, Tether has historically admitted to having as little as $100.20 in assets per $100 in liabilities [0], with a significant fraction of it in crypto and other assets that effectively wouldn't even count toward banks' capital requirements. It has probably dropped below $100 in assets per $100 in liabilities - i.e., been insolvent - at some point, and even taking its latest audit [1] at face value, it has far less capital than would be needed for a bank with the same asset profile in the US or other developed countries.

[0] https://assets.ctfassets.net/vyse88cgwfbl/1np5dpcwuHrWJ4AgUg...

[1] https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYg...

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