Re:U.S. FDIC tells Signature crypto clients to close account...
by mike_d on Tuesday March 28, 2023 @11:49PM
(#35352186)
> Serious question: How does a bank keep "cash on hand"? Was the plan to keep all USD deposits in Fed balances?
Banks keep cash on hand inside vaults, on deposit at their local Federal Reserve Bank, "in transit" (stored at an armored car company), or in accounts at correspondent institutions internationally (primarily for settling debits and credits on international wires).
Re:U.S. FDIC tells Signature crypto clients to close account...
by lxgr on Wednesday March 29, 2023 @12:09AM
(#35352395)
The only one of these that makes sense is a Fed balance (as it is not only free but even pays interest), but the Fed does not seem to be a fan of the idea [1].
Cash in vaults has negative yield (the vault itself isn't free, nor is insurance for it), and if you don't like fractional reserve banking and/or counterparty risk, foreign correspondent banks don't really seem like a good way to eliminate it either.
[1] https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
Re:U.S. FDIC tells Signature crypto clients to close account...
by mike_d on Wednesday March 29, 2023 @03:52PM
(#35362429)
I'm not sure what you are criticizing specifically, I just answered the question of how banks hold cash.
> I suspect they aren't talking about runs and contagions on Custodia, but runs and contagions on all other banks if Custodia were allowed to exist. You can't have one bank totally safe from bank runs in an environment where every other bank keeps less than 10% of your cash on reserve. This breaks the system. Either everyone has to be fractional reserve, or no one can be.
Why? As long as my bank pays more interest on my (insured) deposits than a hypothetical full-reserve alternative, why would I switch to them? Why would anybody (below FDIC limits)?