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0 pointsjohnrgrace6y ago0 comments

Except banking is highly regulated and the money not held in reserves is invested with oversight on how much risk is taken (that oversight fails sometimes but generally works). If a tech company can jump in and function as a bank without oversight that is going to hurt banks.

History has shown us that unregulated banks, and regulated banks that push the limits or evade regulations fail and cause damage to the entire economic system.

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4 comments · 2 top-level

gridlockd6y ago· 2 in thread

First of all, Facebook isn't doing fractional reserve.

Secondly, banking regulation does nothing to mitigate the risk of fractional reserve banking. Your average bank holds maybe 10% of deposits, the rest is loans way into the future. No such bank can survive a bank run.

What does mitigate the risk (for the average bank customers) is the government insurance for bank deposits. A government can always print the money necessary to bail out a failed bank. What such a bailout could do to a currency is another story. Let's just say we got lucky.

In any event, the government wants the banks to loan out all this money, because that's economic stimulus. You can't have both tight regulations and easy money.

viraptor6y ago

> Facebook isn't doing fractional reserve

I think a better description would be: Facebook says that right now they're not planning to do fractional reserve. There's nothing holding them to this promise. There's also no control that their partners in Libra will keep it.

It may well be the same situation as tether (or worse).

gridlockd6y ago

> There's nothing holding them to this promise.

There may be, the exact terms aren't clear yet. Of course the terms might just say "you have no rights whatsoever". The market will price those terms in.

> It may well be the same situation as tether (or worse).

I don't think that's a good argument against Libra. Tether is still trading around 1.00$, despite its reserves being at best 74%. The market is pricing the risk of ending up as bagholder as next to nothing.

Nobody is arguing that holding large amounts of Libra as a "store of value" is a wise thing to do. Neither is storing large amounts of cash under your bed.

logfromblammo6y ago

Every time someone says "banking is highly regulated", a banking executive does not go to prison for breaking a banking regulation in a way that has quietly cost consumers hundreds of thousands of dollars in aggregate.

I have no interest in protecting banks from businesses that act just like banks, and then get punished for doing those things, only because they are not legally considered banks. The last time banks pushed the limits, failed, and caused damage to the entire economic system, it was 2007-2009, and no one was ever held individually responsible for it. I haven't forgotten or forgiven.

So yes, please. Hurt banks. Protecting them just turns them into privileged asses. The "tight regulations" function mainly as their cartel membership rules.

Split tally sticks worked as privately-issued financial instruments for centuries, before banking lobbied to have them outlawed. Banking works better (for the banker) when there are no lawful alternatives to the bank's notes. A cryptographic equivalent to a split tally stick is very acceptable from a historic perspective.

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