FTX collapse brings down a mainstream bank

[tecate]

You are using your own definition of FRB.

No - just calling you out on the lie that you've tripled down on.

To you if someone makes a deposit and the bank uses that to purchase a different asset rather than keep it in a vault then that is FRB.

To me? It's not 'to me'. lol. Full reserve - the bank retains 100% of the money you deposited to a current or demand account. Fractional reserve - the bank keeps 3-10% available. It goes out and uses the rest.

To you banks should just be vaults or custodians

I didn't necessarily say that - you're making an assumption. What I am doing is pointing out a clear risk and drawback of fractional reserve banking. Any reasonable individual would recognize that.

not in any way managing the assets which must at all times be identical to what was deposited with them.

You mean taking depositors money and putting it at risk to make a profit? Like I said, I'm not necessarily against such a thing but lets call it what it is and recognize that there's a major risk element that comes with it.

It is the mismatch between assets and liabilities which causes bank busts not FRB.

Lol. What you're saying is an impossibility. In a full reserve scenario, explain to me where the mismatch relative to treasury bonds and shorter term obligations would occur? So in order to arrive at the mismatch scenario, depositors assets have to be fractionally reserved and then put at risk.

if speaking knowledgably about FRB when you haven't a clue what it actually means, massages your cult fetish I shouldn't rain on your parade.

You've got yer knickers in a tangle there Duke - because what I've stated is accurate. But I do get it, you've been having difficulty over the past six years acknowledging that there might be the slightest deficiency in the conventional system.

 

[NoRegretsCoyote]

From the FT today:

The vast majority of SVB deposits are uninsured, partly because its client base is dominated by big deposit customers such as venture capital firms and the start-ups they backed. At the end of last year, almost 96 per cent were not covered by the FDIC insurance policy which guarantees deposits up to $250,000. At Bank of America, this figure was around 38 per cent.

It's not likely that this could occur in Ireland (or in most of Europe even) as deposit bases just aren't as concentrated with large corporate depositors the way it seems SVB was.

I wonder why CFOs in tech firms were so heavily involved with SVB. Basic risk management says that if you hold big cash balances you should spread them across different institutions.

 

[Duke of Marmalade]

@tecate

Most countries use fractional reserve banking because it is currently the only financial system model that works.

I agree that if banks could only lend shareholders' money then depositors would not be affected by bank busts.
Similarly if banks were forbidden to charge interest then there would be no bank busts.
If fossil fuels were banned there would be no car deaths on the road.

So are the extreme eco cultists right to blame car deaths on diesel or should they blame it on speeding?
Are anti usury fanatics right to blame bank busts on charging interest or should they blame deplorable risk management?

As to blaming fractional reserve banking for bank busts, I hate to preach to a confirmed believer but this is not actually what the High Priests of his cult have against FRB. Their complaint is that it enables banks to multiply their deposits and since deposits are money supply that is what they object to.

​

 

[skrooge]

It's not likely that this could occur in Ireland (or in most of Europe even) as deposit bases just aren't as concentrated with large corporate depositors the way it seems SVB was.

If I were trying to find something similar - and slightly tongue I cheek - it does sound a little like what you might expect to find in a small credit union.

The difference being they would be retail deposits (i.e., less likely to run out the door). Also the CU world probably 'invest' those funds by putting them on deposit with an actual bank. Obviously that's not without counterparty risk but at least it wouldn't be the same level of maturity mismatch as with silvergate.

Perhaps we should send a delegation from the league of credit union's to show them how to do it!

 

[tecate]

As to blaming fractional reserve banking for bank busts....

...

I agree that if banks only lend shareholders' money then depositors would not be affected by bank busts.

So we had to go through 3x exchanges of you telling porkies before you finally admit that fractional reserve banking is the primary reason for both of these failures.

Similarly if banks were forbidden to charge interest then there would be no bank busts.
If fossil fuels were banned there would be no car deaths on the road.

Of course. Here we have your answer to the large swathe of startups and their employees who could find themselves without paychecks and jobs. You have to understand that you don't have your business anymore and you employees dont have your jobs because it has to be like this and as long as I can explain it all logically to you, you'll be fine with that.

Are anti usury fanatics right to blame bank busts on charging interest or should they blame deplorable risk management?

Firstly, you've already acknowledged (despite 3x rounds of lies) that there would be no bank bust without fractional reserve banking, remember? So mulling over whether it is the culprit or not seems like a poor use of everyone's time - having already found that it is.

As for risk management, the moment these banks invested in treasury bonds, risk management went out the window. Imagine investing in something where your central bank alchemists can tinker around with interest rates from one FOMC meeting to the next?
Powell said during the week he will speed up rate hikes if necessary - so I guess we can get to see what he breaks next.

The same fiat money gods that brought the reserve requirement down to ZERO three years ago. Is that what you're talking about when you refer to risk management going out the window?
A Federal reserve who denied a master account to Custodia Bank - which is a full reserve bank - on the basis that that same full reserve bank presents risks to the banking system (Cusodia is suing the Fed for its protectionism), then has its Vice-Chair for Supervision come out on Thursday speaking in the knowledge that Silvergate is toast and that SVB is in dire straits and stating that Fed-regulated banks are well protected from bank runs!!!!

In his testimony before Congress during the week, Powell said that the US will have real-time payments and settlement soon. How do you think the banking system is going to be protected from bank runs in a real time settlement environment, Duke?

But that's one for the future - in the meantime, lets recap. Brendan started this thread to feature as part of a long series of crypto doom threads. And yet, crypto has little to do with what's gone down here. Crypto isn't the reason why we're now faced with greater potential of further bank runs and the likelihood that a whole raft of startups are going to go bankrupt, with their employees losing their jobs. Rather than it being the 'look, crypto bad' thread that he thought it would be, the subject area of the thread is a clear demonstration of the deficiencies of the current system.

 

[Duke of Marmalade]

So we had to go through 3x exchanges of you telling porkies before you finally admit that fractional reserve banking is the primary reason for both of these failures.

The primary reason these banks failed is asset failure and I note that you actually agree with me that it happened because "risk management went out the window"; nothing to do with FRB.
The primary reason cars crash is human error but yes cars wouldn't crash if they had no fuel.

You gave a knee jerk cultish explanation for the busts though the High Priests would probably tap you on the shoulder and whisper in your ear "chill out my son, actually that's not why we are against FRB".

Don't lecture me on the misfortunes of employees without pay checks and jobs. Consider first the poor mugs who swallowed the cult's promise of salvation at $70,000 a bitcoin.

Yes it is difficult to see why this classic failure of the fiat system has anything to do with crypto and yet it caused bitcoin to fall 10% against the dollar.

Anyway, I will let you have the last word as usual.

 

[tecate]

The primary reason these banks failed is asset failure and I note that you actually agree with me that it happened because "risk management went out the window"; nothing to do with FRB.
The primary reason cars crash is human error but yes cars wouldn't crash if they had no fuel.

Sweet Jehovah
Bank runs are a clear and stand out drawback of fractional reserve banking. The use of fractional reserve banking is the primary factor in creating the conditions for a bank run. 'Risk management' by a given bank is secondary - and as we have seen, banks cannot be relied upon to implement systems that are adequate. Neither can the regulator with its zero reserve requirement and having eased bank stress testing more recently - yet lying to the public about its ability to prevent ban runs in the very middle of those bank runs occurring.

Don't lecture me on the misfortunes of employees without pay checks and jobs. Consider first the poor mugs who swallowed the cult's promise of salvation at $70,000 a bitcoin.

I very much will call you out on it. That's a disingenuous response. You very much have been presenting this as all acceptable and logical. BS. Your precious banks screwed up. Your precious regulator screwed up. The outcome is REAL. Fess up and acknowledge the shortcomings - that's what any reasonable person would do.
And now to your swipe at bitcoin. The promise of "salvation" you say? I ran a search on the word "salvation" in this section and you're right - it's been mentioned a gazillion times - by you. Nobody else but you. Otherwise, you think that taking someone deciding to speculate on bitcoin at the top of what was clearly a well-flagged hype cycle (run a search here on 'hype cycle' and you'll see it mentioned lots of times - by me) and someone leaving funds in a current account are comparable?
(and for reasons that have been thrashed out ad nauseum, none of what you just stated detracts from the qualities of bitcoin. You made exactly the same claims in 2018 - pity the poor mugs that bought at $20k, etc.).

Yes it is difficult to see why this classic failure of the fiat system has anything to do with crypto and yet it caused bitcoin to fall 10% against the dollar.

Conveniently not looking very hard. The 'run' on Silvergate came as a result of a lack of faith in your precious banking system. In the case of SVB, while it wasn't a stand-out crypto-friendly bank (it's focus is tech more generally), they did bank Circle. Circle had $4B deposited in your banking system that can't be trusted.
So to answer your question, Bitcoin fell because of the systemic risk of banking to crypto.

Anyway, I will let you have the last word as usual.

I think we've been down this road before. Run a search on "last word" - the only one talking about it is you.

 

[Duke of Marmalade]

Bank runs are a clear and stand out drawback of fractional reserve banking.

Unless you envisage a banking system that does not lend out its deposits and places them all with the Central Bank (which you distrust so much) and makes its living purely by charging custodial fees for said deposits. It is a quaint idea, not shared by the High Priests of the cult. You used the word "fractional" as a cultist knee jerk put down.

I very much will call you out on it. That's a disingenuous response. You very much have been presenting this as all acceptable and logical. BS. Your precious banks screwed up. Your precious regulator screwed up. The outcome is REAL. Fess up and acknowledge the shortcomings - that's what any reasonable person would do.

Yes, I have stated before that our monetary system is a marvellous human advance, adopted by every nation on earth and having played a major part in the enormous explosion in economic growth witnessed over the past many decades. It has its weaknesses as do motor cars - the weaknesses of human beings. I repeat, do not lecture me on its casualties when you championed the attempted duping of El Sal peasants into the cult when btc/$ was a multiple of its present value. They may be peasants but my understanding is that they saw through the cult BS.

So to answer your question, Bitcoin fell because of the systemic risk of banking to crypto.

Bitcoin fell 10% against the dollar. I could understand it falling against gold but surely the dollar was more exposed to the systemic risk of banking.

I think we've been down this road before. Run a search on "last word" - the only one talking about it is you.

I might challenge you for the honour this time round.

 

[tecate]

Unless you envisage a banking system that does not lend out its deposits and makes its living purely by charging custodial fees for said deposits. It is a quaint idea, not shared by the High Priests of the cult. You used the word "fractional" as a cultist knee jerk.

Get out of it Duke. All any reasonable person would have done (for expediency if nothing else) is say "yes, the potential for a bank run is a major drawback of fractional reserve banking" - and done.

Yes, I have stated before that our monetary system is a marvelous human advance, adopted by every nation on earth. It has its weaknesses as do motor cars - the weaknesses of human beings.

It's a shame that you can't be open to discussing and acknowledging those weaknesses alongside the benefits. At least you do identify the core issue (the weaknesses of human beings) which has led to an interest in decentralized, transparent trustless systems.

I repeat, do not lecture me on its casualties

Lecture you? Last I heard this was a discussion. And if you are saying that we should only discuss the shortcomings of the things you loathe and ignore the shortcomings of items you roll in behind, it doesn't work that way Duke.

when you championed the duping of El Sal peasants into the cult when it was $70k /btc.

Lets see. Thoughts. GFY. Secondly, show me the post where I 'duped' El Sal 'peasants' when it was $70k/btc.
El Salvador is a perennially challenged developing world country and yet, La Ley Bitcoin has been nothing but a positive step for it. The IMF told us that the world was going to cave in, that El Salvador wouldn't meet its loan repayments (which is the idea anyways) but it did without any issue. And all the while, you think that project bitcoin is dead in El Salvador when that's the farthest thing from the truth - it's doing just fine.

Bitcoin fell 10% against the dollar. I could understand it falling against gold but surely the dollar was more exposed to systemic risk.

If you want to talk about the dollar, talk about the dollar. My understanding was that you queried why bitcoin fell. I gave you a rational answer. Now you can't understand why it fell against a particular currency? The answer is the very same. USDC is a key component within the cryptocurrency ecosystem. It being affected by the failure of a regulated bank, together with the risk related to other regulated banks - is the reason for the drop. Banking failure is a threat to the crypto ecosystem right now.

I might challenge you for the honour this time round.

I'm not interested in childishness. This is a discussion board. You have something to write - write it. You don't? - then don't. It's that simple.

 

[Duke of Marmalade]

Get out of it Duke. All any reasonable person would have done (for expediency if nothing else) is say "yes, the potential for a bank run is a major drawback of fractional reserve banking" - and done.

You "get out of it". You throw in the word "fractional" as some sort of cult virtue signalling. Everybody else just calls it banking. If you allow a system which can do other than place deposits with a Central Bank you are open to bank runs

Lecture you? Last I heard this was a discussion.

"Get out of it". I was challenging your use of the word "fractional reserving" and you drag in employees waiting for pay checks,

Lets see. Thoughts. GFY. Secondly, show me the post where I 'duped' El Sal 'peasants' when it was $70k/btc.

My dear tecate I would not give you that sort of influence. I said you "championed" the duping by the cult, and you have proved my point.

If you want to talk about the dollar, talk about the dollar.

Yes, I want to talk about the dollar. Why did the arch pillar of the banking system rise 10% against bitcoin when this systemic weakness unravelled?

I'm not interested in childishness. This is a discussion board. You have something to write - write it. You don't? - then don't. It's that simple.

I'm currently ahead

 

[tecate]

You throw in the word "fractional" as some sort of cult virtue signalling. Everybody else just calls it banking. If you allow a system which can do other than place deposits with a Central Bank you are open to bank runs

I use the term fractional reserve banking because its entirely accurate. Anyone other than a child would just say, "yes, the potential of a bank run is a serious drawback of fractional reserve banking" rather than engage in semantics.

I was challenging your use of the word "fractional reserving"

There's no challenge. You lied three times and said that fractional reserve banking doesn't create the potential for a bank run, later to acknowledge that it does but to castigate me for bringing it up because its somehow inconvenient to you. Could it be that the vast majority of people have no notion what fractional reserve banking is - and that if they understood it, they'd be less likely to leave their funds in a system that really needs them to think that there's no risk to their funds and that their funds are always available to them?

you drag in employees waiting for pay checks,

You can make light of this as much as you want - but you're entirely wrong to do so. The FDIC guarantee covers 3% of deposits in the case of SVB. The bank's clients are Silicon Valley startups. If they go under, they take payroll and jobs with them. That's before we consider further contagion if your alchemist friends don't get to grips with it.

My dear tecate I would not give you that sort of influence. I said you "championed" the duping by the cult, and you have proved my point.

Your claim was/is that I 'duped' El Sal 'peasants' as you called them when bitcoin was at its all time high. I asked you to provide proof of that - you can't. That I've outlined that La Ley Bitcoin has been a success is unconnected with your wayward claim. Everyone knows that bitcoin relative to El Salvador was all about payments, remittances and that type of use case relative to bitcoin.

Yes, I want to talk about the dollar. Why did the arch pillar of the banking system rise 10% against bitcoin when this systemic weakness unravelled?

It didn't "rise". I already clarified that bitcoin fell because of the risks posed by your beloved banking system.

 

[Duke of Marmalade]

I have conceded last word in the other bunfight - a prize I was never going to win
Anyway, I must tell you of a conversation I heard in a pub last night.
Person A, who we all know to be a Green cultist says "did you hear about the diesel car that knocked down a dog out there?" We all raised our eyebrows, here was the usual vice signalling. Person B, a very reasonable person despite being gentry, decided to challenge A "why are you emphasising the word 'diesel'? The driver was totally drunk".
A replied "if it wasn't for the diesel the car wouldn't have been able to go, you heartless so and so having no compassion for that poor doggie - another victim of your cherished fossil fuels".

 

[tecate]

Anyway, I must tell you of a conversation I heard in a pub last night.

"must" you say? I'd hate you to feel obliged to provide any more of these anecdotes. I'm pretending to myself that either Person A or B at least had an account at SVB, to kind of make it relevant in some way.

 

[Duke of Marmalade]

What do I have to do to get the last word?

 

[tecate]

What do I have to do to get the last word?

Set the dial to 97.3 MHz and tune in to Matt Cooper tomorrow at 4.30pm.

 

[Duke of Marmalade]

Anyway, in case it was a bit too subtle, my parable was related to the erroneous vilification of FRB in the SVB debacle - perfectly on topic. Cults are supposed to be good at parables. That should be the LAST WORD.

 

[tecate]

Anyway, in case it was a bit too subtle, my parable was related to the erroneous vilification of FRB in the SVB debacle - perfectly on topic. Cults are supposed to be good at parables. That should be the LAST WORD.

There was no 'vilification' - but there was a clear statement of fact. Over 6 years here, there's been a lack of maturity to your argument in that you won't tolerate any discussion or acknowledgement of failures/drawbacks of our current economic and financial systems.

 

[Duke of Marmalade]

Ah, so you did understand the parable. Why did you suggest it was off topic? Anyway we are boring everybody else silly so that definitely is my last word.

 

[tecate]

Ah, so you did understand the parable. Why did you suggest it was off topic? Anyway we are boring everybody else silly so that definitely is my last word.

Great to hear your thoughts (regardless of how wayward they are) on this as always, Duke.

https://twitter.com/x/status/1635037445497716736

 

[DublinHead54]

@tecate what are your thoughts on Bitcoin losing ~10% of its value on Friday as SVB unravelled and how the price remains linked to the fiat banking shortcomings?