[Animats]

No, no, no. Cryptocurrency fans keep making that up. In fractional reserve banking, the bank uses deposits to make loans. The loans have collateral behind them, often real estate. There are real assets backing the loans.

That's not how Tether works.

Tether is supposedly invested in "commercial paper", but that has to be fake. If they were really buying commercial paper, they'd be in the top 10 commercial paper buyers. The trading desks that trade short term commercial paper would see billions of dollars of transactions from Tether. Traders report they're not seeing that.

[beambot]

Collateral doesn't get you liquidity... You can still have a run on the bank with insufficient liquidity.

[22c]

>The loans have collateral behind them, often real estate.

There's still an assumption that the real estate can be liquidated 1:1 for the loan value, though.

I think the difference is not so much the collateral, but the insurance.

[Animats]

No, the assumption is that the collateral can be liquidated at (1-x%) of loan value, and that the bank has x% in loan reserve capital to make up the losses.

[22c]

Yes, you are quite correct. I believe the point still stands, that there is nothing inherently pegging collateral + reserve to it's loan value.

If the risk of default is too high, banks usually won't give out loans without some form of insurance.

[anonymoushn]

Whoa, banks don't have any unsecured loans?