I don't see why being regulated or not has anything to do with whether you are practicing fractional reserve banking. As I understand it, the concept is just that your assets are not all liquid, but rather some of them are long term loans.
Which is not to say I think unregulated banking is the same as regulated banking.
Bank reserves have little to do with money creation:
> Lord Adair Turner, formerly the UK's chief financial regulator, said "Banks do not, as too many textbooks still suggest, take deposits of existing money from savers and lend it out to borrowers: they create credit and money ex nihilo (out of nothing) – extending a loan to the borrower and simultaneously crediting the borrower’s money account
> the German central bank explains that the money supply is not determined by the reserves of private banks, but by market factors and regulatory decisions.
Do you think the US government could cover every single cent if all the depositors wanted their money out now?
Not even physical cash, just a transfer to an overseas account. The money simply isn't there and the scales are enormous. US banks only can pay back 3-10% of cash deposits. The FDIC only has enough to cover a tiny proportion of bank liabilities.
It seems very disingenuous for people in this thread to say "well if everyone cashed out tethers" and then handwave away the alternative of "well if everyone cashed out USD". These scenarios playing out would have Tether actually being able to pay a reasonable percentage of creditors.
"Do you think the US government could cover every single cent if all the depositors wanted their money out now?
Not even physical cash, just a transfer to an overseas account. The money simply isn't there and the scales are enormous."
What do you mean by "money"? How can money "simply" not be available, when it's a matter of updating a row in a database? The issue is whether assets exist. Googling suggests the US contains assets worth $124 trillion; is that incredible to you?
And if we wanted to print $124 trillion of cash to represent all the assets, that would be silly, but just as doable as a wall on the Mexican border.
> Do you think the US government could cover every single cent if all the depositors wanted their money out now?
Yes, because the US government can literally fiat dollars into existence.
OTOH, the big point of guaranteeing deposits is that a credible party doing that prevents bank runs, which are caused by fear of bank collapse that will destroy access to deposit balances.
> The FDIC only has enough to cover a tiny proportion of bank liabilities.
The FDIC’s funds are just the zero-effort first-love of payment; FDIC insurance is guarantees by the government, not just the gives held by the FDIC.
> It seems very disingenuous for people in this thread to say "well if everyone cashed out tethers" and then handwave away the alternative of "well if everyone cashed out USD".
Tether isn't backed by an entity which can simply will USD into existence; FDIC or NCUSIF insured bank or credit union balances are.
The USA gov can just print the money to pay off the backed cash. Everyone gets their money. It may not be worth much if everyone actually demanded they could hold the dollar amount of their accounts in their hands in paper money - indeed, I imagine, you'd cause severe privations on the government funds in order to produce the money.
"It may not be worth much if everyone actually demanded they could hold the dollar amount of their accounts in their hands in paper money"
If literally nobody (hypothetically) is willing to own actual land, factories, and so on, then it's the tangible assets that are worthless, not the money. It would be the ultimate in deflation.
I certainly agree it's possible, but at that stage you've gone down the Venezuelan path and I'd assume there are far smarter regulators in the States. The money wouldn't be given out, not even a fraction, it's a such a huge risk to stability that they'd cancel withdrawals and work from there. We saw this happen in Cyprus.
Which is not to say I think unregulated banking is the same as regulated banking.