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https://www.nerdwallet.com/best/banking/savings-accounts
I assume all of those are money market accounts like a brokerage sweep account as opposed to a regular bank savings account which, at my bank at least, are still paying 0.01%. Which may be a reasonable risk/reward tradeoff as 4% on, say, $100K isn't nothing.
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I assume all of those are money market accounts like a brokerage sweep account as opposed to a regular bank savings account which, at my bank at least, are still paying 0.01%. Which may be a reasonable risk/reward tradeoff as 4% on, say, $100K isn't nothing.
Those are really savings accounts. I myself created accounts in them to take the benefit.
I guess a lot of regular banks have decided that they'll just continue to pay the "dumb money" basically nothing rather than trying to compete with the banks and brokerages paying reasonable interest rates.
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Those are really savings accounts. I myself created accounts in them to take the benefit.
Interesting. Marcus for example is explicitly covered by FDIC. I guess a lot of regular banks have decided that they'll just continue to pay the "dumb money" basically nothing rather than trying to compete with the banks and brokerages paying reasonable interest rates.
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"Deserve prison"? Did they commit a crime?
In 2008? I think it was fraud yes. What would you call packaging mortgages you know are worthless in pretty wrapping to be able to sell them to the next bagholder? That it temporarily works and it's how everyone does business isn't an excuse.
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Interesting. Marcus for example is explicitly covered by FDIC. I guess a lot of regular banks have decided that they'll just continue to pay the "dumb money" basically nothing rather than trying to compete with the banks and brokerages paying reasonable interest rates.
There is a market for it. Not every human sits everyday watching interest rates, stock prices or other financial signals. I, for one, am glad that banks are competing for money with any interest rate.
Has the low cost of online banking removed the need for fractional reserve banking? Why does a basic checking account need to have economy destroying risks?
In what way does online banking change things?
Fractional reserve banking seems like an absurd way of paying for banking.
Any article, tweet, or comment section on this issue is rife with willfull ignorance of basic banking practices, chief among this being the strawman multiple bank accounts. The FDIC limit is not just some technicality that businesses abuse with many accounts, it is a recognition of that fact that banks like SVB, which hold large deposits from a small number of highly correlated depositors, are fundamentally more risk…
How can a static number make sense given the existence of inflation? We've been told for the last year that inflation is "out of control," and yet in the case of the FDIC cap, $250K in 2012 dollars makes the same amount of sense as in 2023 dollars? To save anyone the work, $250K in 2012 is equivalent to $350K in today's dollars, so, a change of $100K, or 40%. Did TARP, which is repeatedly criticized for being passed too hastily, and also included this $250K cap, have secret future knowledge of interest rates and specifically intend for the cap to reduce in value by 40% over the following 10 years? The FDIC limit started at $2,500 in 1966 and has been increased several times. Have we magically arrived at the final number now?
> Deposit sweep accounts cover up to $3M (and diversify across banks, exactly the point of FDIC limits).
These numbers remain arbitrary. Your argument is only that there needs to exist an FDIC limit, not this particular limit. Why is $3M the right amount for sweep accounts? Saying "you can combine accounts to stack FDIC limits like video game power buffs" is true regardless of the base FDIC limit, it doesn't explain why this limit is correct, too high or too low. Look, it works for $50,000 too: "You can have deposit sweep accounts that cover up to $600K. Money market funds provide short term-term treasury bonds above that". And hey, it works for $500K: "You can have deposit sweep accounts that cover up to $6M. Money market funds provide short term-term treasury bonds above that". See, the surrounding multiplier system has nothing to do with justifying the base number. It seems much more likely that a number that was set 10 years ago when money was worth 40% more, and that has a history of needing to be raised, probably doesn't make sense today and needs another update.
> The FDIC limit is not just some technicality that businesses abuse with many accounts, it is a recognition of that fact that banks like SVB, which hold large deposits from a small number of highly correlated depositors, are fundamentally more risky than banks with a large number of smaller uncorrelated depositors. Sweeping large deposits across banks and properly investing in treasuries reduces systemic risk and prevents bank runs in the first place. The de facto removal of FDIC caps defeats this diversification and protection.
If it is so critical to the integrity of the system, then why aren't accounts required by law to be sweeps above the FDIC limit, and not allowed past the "natural sweep multiplier FDIC limit" at all? You just said it yourself: the purpose is to reduce systemic risk. Then let's actually reduce it instead of "planting the seeds of reducing it if everyone gets sophisticated enough," and then getting angry when they fail to do it. The current system is like purposefully trying to create a tragedy of the commons, where individual mistakes are rarely very rarely punished but together contribute to bringing down the entire system. Allowing below FDIC limit accounts seems to be a weird landmine for both the depositor doing it, and for the larger system it operates in. It's the worst of both worlds. It's like when an API doesn't work, and instead of fixing the API, the author updates the documentation to include a workaround and is baffled why people keep running into this problem. Don't they read the docs? These uses are supposedly supposedly so smart but can't be bothered to find this simple workaround buried in my documentation?
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Of course they have a choice: money market funds and T-Bills. If you're handling millions in cash, you're supposed to know about these.
Circle needs those dollars highly liquid because otherwise they'd run into issues with their own customers. Exchanges can't give the customers T-Bills when they trade for dollars. Also startups do not get paid in Treasury Bills when they strike deals. Clearly this system is flawed and prone to bank runs, which happen again and again. Because business people especially are aware of how banking works, they know the ban…
If you're operating a business that requires millions or billions of dollars sitting in a bank account, you can't plead ignorance around FDIC insurance and claim that you're just a small business trying to scrape by. Your business is open to a big risk, and there are well understood techniques for managing that risk. If you're a disruptive company who's trying to change the world and you don't fit into traditional finance, you find a creative way to deal with the risk. But if you _do nothing_ and keep all your money in a bank hoping they don't collapse, sorry, but that's accepting the risk.
I don't see this is a systemic failure. The system is set up to protect individuals and small businesses, with the expectation that larger companies can pay people to manage these risks. If Circle's CFO and finance team couldn't come up with a better solution than parking all their money at SVB, I'd argue it's a sign of Circle not being a viable business rather than a sign of some fundamental flaw with the banking system.
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>If two people have knives to each others throats you don't win by just not being the first to cut, you win by putting the knives down. Strictly speaking there are 4 outcomes, according to John Nash. The cooperate outcome is globally the best, but the 2 defect outcomes are much better for the individual winner. The 4th outcome, 'they fought and badly wounded each other, but both lived', is what's going on here, and t…
"the old story about the orphan who makes it, recognizes the positive influence the orphanage had on his success, and then burns the orphanage down to ensure no others arise to challenge his power." This would be a really interesting villain. Someone who wasn't subject to the fundamental attribution error and had an unlimited appetite for destruction.
I have this innovative idea for business. Imagine you charge money from depositors for keeping their money in a big safe vault. No trading or lending their money. You just keep it safe.
That's just a waste of capital and leads to zero business investments. It's exactly what happens in crypto because it's deflationary, and it's the main reason there is no crypto economy beyond the price speculation.