FTX pretty much did, 7 months ago :

https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...

Though it then, by definition, makes it not a Ponzi (at that specific point), since Ponzi implies deception : banks are also unable to pay everyone at once, yet they typically aren't called "Ponzi".

> banks are also unable to pay everyone at once, yet they typically aren't called "Ponzi".

There's a distinction between liquidity and solvency. Banks can run into liquidity issues, but in theory if they do their job right they should stay solvent, and will be backed by insurance / reinsurance and such. Basically a very different world from these yolo crypto outfits running out of offshore tax havens.

I am not sure there is a clear distinction between the two for fractional reserve banking ?

The bank can have done nothing "wrong", yet if the situation is bad enough : bank run + entities it has been lending to going bankrupt + entities that could bail it out going bankrupt too ; then the bank IS going bankrupt, and taking most of the opposite fraction of the money it claimed to "hold" with it...

This is where the "lender of last resort", i.e. the government, comes in. Depositor losses are sufficiently bad for the economy as a whole that it makes sense to prevent them at almost any cost.

The UK ended up owning RBS: https://commonslibrary.parliament.uk/royal-bank-of-scotland-...

Ireland got hit pretty hard: https://www.irishtimes.com/business/financial-services/2022/... but did at least manage to send Sean Quinn to actual jail.

Cyprus had too large and too dodgy a banking sector for its government to cover, so there depositors did incur real losses ("haircut").

It's statistical, like everything, and the difference is whether you have a guaranteed valuation for your illiquid assets. If you are backed by the full faith and credit if the US (taxation, IRS, and military), you are 99% solvent. In Brazil, maybe 80%

>I am not sure there is a clear distinction between the two for fractional reserve banking ?

If your assets are real and not shitcoins, there is a difference. If I have $200 in my bank, the bank takes $100 from me and buys AAPL stock (and adds their own cash); and then I go to withdraw my $200 on Saturday:

1. The bank is illiquid. I want $200 cash, but the bank only has $100 and 1 AAPL stock.

2. The bank is (likely) solvent. Unless AAPL crashes below $100 on Monday morning they are likely good for the money (AAPL, a blue chip stock, is unlikely to crash below $100) on monday morning. In this case a lender of last resort will step in (like the Fed) and bank may pay some premium for an emergency loan.

Still fraud though. Basically the banks convinced the coin makers to issue new money if they become insolvent. It would be the same as FTX being able to call the money printers of each currency to get the needed funds to stay afloat. Amazing this is not considered a criminal enterprise.

The banks are just on a different level of grift when compared to crypto exchanges

No, you're completely missing the distinction between insolvent and liquidity problems, even though it was explained to you in the post you replied to.

A bank with liquidity problems borrows newly printed money from the central bank and repays them with the profit generated from its loans. An insolvent bank that made too many loans that won't be repaid can't repay loans the money printers might offer it and so still gets wiped out. (Its customers get bailed out, but its shareholders don't).

Sure, I can understand there's a difference. But what's not equivalent with what happened in FTX? It's essentially a bank run without the ability to get a lender of last resort. Banks are just more protected in this situations, but in the end they are still playing the same game as the crypto exchanges.

> what's not equivalent with what happened in FTX?

Banks openly lend money to a people who are not the bank's CEO and companies which are not run by the bank's CEO and make a profit on the vast majority of them repaying the money, though typically over a time frame of years, not days. This means the lender of last resort providing funds for those days also expects to get repaid

FTX secretly lent customer funds to a single company run by its CEO to bail it out, and there was no realistic prospect of that money ever being repaid.

If you honestly think that's "equivalent", I'll happily share Paypal details so I can look after some of the money in your bank account in what you consider to be the same way the bank does...

You are completely wrong.

Banks have a liquidity and term mismatch, but are required to be solvent. Ponzi schemes offer fake balances and are insolvent.

It's not clear at what exact point FTX became insolvent, but I think the CEO writing an $8bn disguised accounting entry for tokens he'd lent to his girlfriend may have been it.

When you are big enough liquidity and solvency are the same thing.

There's also maybe the option of being insolvent but nobody caring because the money is too good..?

Not sure what to call this since I assume this has been regulated to death in normal finance ?

But it wouldn't surprise me if it had happened at some point at FTX, considering all the greed and hype around crypto...

Though I guess it might be a moot point : information doesn't travel instantly, and a judge might still deem you "guilty of Ponzi" (or whatever term is appropriate) if you haven't literally been shouting "We are insolvent !" from the rooftops ? See again : regulation.

"Trading while insolvent" we call it in the UK; the legal obligation is to call in the administrators when you realize you're insolvent. Which they have now done. And insolvent companies generally do themselves, because it's less painful than the alternative.

There will probably be a lengthy argument in court (but which court - Bahamas?) as to whether they should have realized this earlier and whether their accounting was deceptive or incompetent.

(those interested should read "Lying for Money" by Dan Davies, it's an entertaining and escalating history of fraud)

"Trading while insolvent" is called "equity" or "unsecured loan", and it's legal and regulated.