I believe the U.S. minimum requirement is currently at 10%, but you do remember how bad it all came crashing down 13 years ago, right?
So yes, it does matter if we let financial institutions disregard risk in the pursuit of profit, when they are gambling with other people’s money.
In the case of Tether though, it’s not a traditional bank that issues interest yielding loans based on the lender’s credit profile.
Rather, the suspicion has been that they are simply issuing USDT coins to buy up crypto, which causes the latter to increase in value, but the money to buy these assets were never there in the first place, and that is why today, they can only show a fraction of the cash they claim to have received.
"As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions."
I experienced time very differently the past year. I thought it was two years already. But I'm sure there was another announcement similar to that earlier.
The OP just told you it's 0%, and he's right. Reserve requirements have been abolished for the past 2 years, and even before that, banks could easily conjure reserves when they needed. That was the whole point of the QE programs run by the Fed.
Edit: another poster linked the actual Fed announcement and it is actually 1 year since the reserve requirement has been lifted.
Banks aren't at all like a supposedly pegged cryptocurrency. Secondly banks don't have a 0% reserve requirement against all types of RWA. They have specifically low reserve requirements against certain types of assets but if you look at the balance sheet of a bank you'll see that their capital reserves are not zero. The Fed removed the reserve requirement on eligible deposits and moved to the "ample reserves" system where they pay interest on reserves that depositary institutions lodge with them but which a specific reserve requirement against liabilities is not needed.
Sibling comments express justified disbelief at this question, but just in case: in our modern monetary system, reserve requirements aren't the "last resort" against bank runs. The central bank will jump in and provide the required liquidity to prevent a bank run as a last resort, and (since it is the entity which ultimately runs the monetary system) the central bank is by definition always able to do so. For a bank to fail in the modern system, it has to fail its capital requirements, which is a very different story (the keyword you'd be looking for here is the Basel regulations).
Tether cannot fall back to a central bank, so the cases are completely incomparable.
Well, they don't print the USD. But you're right, perhaps a better analogy for what people mean is a central bank trying to maintain a currency peg. Which also often ends badly...
Yes because it's an unregulated offshore private company? In the physical world it's like giving money to someone in exchange for a piece of paper with "1 my token", freshly out of the printer. It's worse than banks.
How are they any different? They both do fractional reserve banking. If anything, Tether is more robust because they aren't controlled by central banks.
A random individual in the street can do fractional banking too, and by that reasoning is more robust than a bank. Why would you specifically trust Tether with your money?
I would trust a random individual more than a bank. There is a chance that the random individual might be honest... On the other hand, I know for sure that banks are running a pyramid scheme.
We used to have private banks 100 years ago, and people would lose their money on a run on the bank. Central banks were created to have a shared liquidity pool so you are all safe in your deposits. Not just a private company that issues money and can run away with it all
So yes, it does matter if we let financial institutions disregard risk in the pursuit of profit, when they are gambling with other people’s money.
In the case of Tether though, it’s not a traditional bank that issues interest yielding loans based on the lender’s credit profile.
Rather, the suspicion has been that they are simply issuing USDT coins to buy up crypto, which causes the latter to increase in value, but the money to buy these assets were never there in the first place, and that is why today, they can only show a fraction of the cash they claim to have received.