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Regulators should treat stablecoins like banks

economist.com

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Re: Regulators should treat stablecoins like banks

#11

Post by SilasX »

MattGaiser wrote: post #2

> With estimated leverage of 383-to-1, Tether would be unable to honour all its tokens after losses of just 0.26%—a safety cushion that regulators would never allow at a bank. So even if they are telling the truth, it is still on the edge.

Banks are now required to have 0% of deposits as cash.[1]

It’s funny whenever people start to get outraged at seeing fractional reserve banking in any context besides where we’ve ignored it and accepted it.

[1] Citation for those who missed this development: https://www.eidebailly.com/insights/articles/2020/4/federal-...

Re: Regulators should treat stablecoins like banks

#12

Post by chroem- »

MattGaiser wrote: post #2

> With estimated leverage of 383-to-1, Tether would be unable to honour all its tokens after losses of just 0.26%—a safety cushion that regulators would never allow at a bank. So even if they are telling the truth, it is still on the edge.

As opposed to banks in the US, which legally have a 0% reserve requirement. [1]

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

Re: Regulators should treat stablecoins like banks

#13

Post by CryptoPunk »

JumpCrisscross wrote: post #5
CryptoPunk wrote: post #3

Intellectuals should stop advocating that people be treated like children. PayPal and other e-wallets are not required to have bank charters to issue dollar-backed digital currency, and neither should stablecoins. In the wake of the 2008 financial crisis, a well-capitalized player, Walmart, which was expanding its banking activity via its Sam's Club lending, was well positioned to replace the incumbent Wall Street fi…

> stop advocating that people be treated like children Stablecoins are money market funds. Those initially came about due to regulatory limits on deposit-account interest rates and risk thresholds. They nearly took out the real economy in 2008. Stablecoins are recreating that structure, guaranteeing a peg against a portfolio of risky assets inextricably tied to the mainline financial system. (This is a summary of the…

>>They nearly took out the real economy in 2008.

No they didn't. The government nearly took out the real economy.

In the decade before the financial crisis, regulatory pressure was used to force banks to issue more subprime mortgages. This article from 2000 warns of the consequences:

https://www.city-journal.org/html/trillion-dollar-bank-shake...

Government sponsored enteprises, which underwrite 50% of the entire US mortgage market, started massively increasing their subprime loan guarantees at the same time.

And then you have Federal Reserve mouthpiece, New York Times columnist Paul Krugman, advocating in this 2002 article that the Federal Reserve create a housing bubble:

https://www.nytimes.com/2002/08/02/opinion/dubya-s-double-di...

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

This revisionist account of the causes of the financial crisis is just these same powerful forces, who are receiving billions in kickbacks from all of this corruption, pinning the blame for the financial crisis on the mythical deregulation-bogeyman.

Re: Regulators should treat stablecoins like banks

#14

Post by shakna »

CryptoPunk wrote: post #3

Intellectuals should stop advocating that people be treated like children. PayPal and other e-wallets are not required to have bank charters to issue dollar-backed digital currency, and neither should stablecoins. In the wake of the 2008 financial crisis, a well-capitalized player, Walmart, which was expanding its banking activity via its Sam's Club lending, was well positioned to replace the incumbent Wall Street fi…

> PayPal and other e-wallets are not required to have bank charters to issue dollar-backed digital currency, and neither should stablecoins.

Paypal actually has a bunch of state licenses. [0] Twenty-three of those are with a banking commissioner or department.

[0] https://www.paypal.com/us/webapps/mpp/licenses

Re: Regulators should treat stablecoins like banks

#15

Post by simmerup »

JumpCrisscross wrote: post #7
simmerup wrote: post #4

Earlier quoted context omitted.

So if 0.26% of tether is withdrawn into currency the coin would collapse? Am I reading that right?

> if 0.26% of tether is withdrawn into currency the coin would collapse If 0.26% of Tether is withdrawn, it would need to start liquidating assets. That will, most of the time, be fine. Commercial paper is exceedingly liquid. But sometimes, the liquidation will prompt a price fall. This is a fire sale. That, in turn, prompts more redemption, as holders of Tether grow concerned about its stability. This is a bank run.…

I guess Tether make it hard to withdraw dollars for a reason.

Re: Regulators should treat stablecoins like banks

#16

Post by kn0where »

chroem- wrote: post #12
MattGaiser wrote: post #2

> With estimated leverage of 383-to-1, Tether would be unable to honour all its tokens after losses of just 0.26%—a safety cushion that regulators would never allow at a bank. So even if they are telling the truth, it is still on the edge.

As opposed to banks in the US, which legally have a 0% reserve requirement. [1] [1] https://www.federalreserve.gov/monetarypolicy/reservereq.htm

The big difference is the FDIC.

Re: Regulators should treat stablecoins like banks

#17

Post by toomuchtodo »

kn0where wrote: post #16
chroem- wrote: post #12

Earlier quoted context omitted.

As opposed to banks in the US, which legally have a 0% reserve requirement. [1] [1] https://www.federalreserve.gov/monetarypolicy/reservereq.htm

The big difference is the FDIC.

Which, if it were to fail (which is exceptionally unlikely), is backed by the US Treasury and the Federal Reserve.

EDIT: Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts.

Re: Regulators should treat stablecoins like banks

#18

Post by dannyw »

toomuchtodo wrote: post #17
kn0where wrote: post #16

Earlier quoted context omitted.

The big difference is the FDIC.

Which, if it were to fail (which is exceptionally unlikely), is backed by the US Treasury and the Federal Reserve. EDIT: Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts.

AKA: You, the American taxpayer.

Re: Regulators should treat stablecoins like banks

#19

Post by [deleted] »

dannyw wrote: post #18
toomuchtodo wrote: post #17

Earlier quoted context omitted.

Which, if it were to fail (which is exceptionally unlikely), is backed by the US Treasury and the Federal Reserve. EDIT: Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts.

AKA: You, the American taxpayer.

[deleted]

Re: Regulators should treat stablecoins like banks

#20

Post by nonameiguess »

MattGaiser wrote: post #2

> With estimated leverage of 383-to-1, Tether would be unable to honour all its tokens after losses of just 0.26%—a safety cushion that regulators would never allow at a bank. So even if they are telling the truth, it is still on the edge.

This is unfortunately no longer true. The Fed set the required reserve ratio to 0% last March. They still incentivize holding cash reserves by paying interest to banks roughly equal to what they could get by holding something like commercial paper, effectively giving banks free money since there isn't actually any risk, but they technically no longer require banks to hold any cash at all.

Of course, the Fed allows this because demand deposit accounts at banks are insured by the FDIC, so people will get their money back even if the bank doesn't have it.

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