Sort of reminds me of the claim made by FDIC that they can back up all accounts in SVB. Maybe they can, but it's mainly the illusion that maintains the economy.
One thing crypto has been good for is it made us think critically about why money actually is. It's all a matter of faith and believing someone else will value it in the future...or a military will tell you to value it. Gold has the same issue; its intrinsic value is somewhere around silver or copper.
Once you think about currencies this way, you realize that while crypto could be used as a currency, it isn't; its a speculative investment, like a digital beanie baby.
No, money is suppose to exist as solid green paper. The value is imaginary but its existence is physical.
The bank and government claim that if I want my money they can give me my money in green physical paper bills because it exists in the bank.
Problem is that it's a lie. That's why bank runs are possible. And the current bank runs ends with another institution taking over and articulating the same lie.
There are a lot more bank deposits than green paper.
It's similar to how banknotes originally were 1:1 correlated with physical gold (or whatever) in the vault, then banks realized they could lend out more notes than they have gold in the vault.
Very similar situation with electronic vs paper dollars.
Most bank deposits are created out of thin air by commercial banks when they make loans. There isn't enough paper money to cover all those deposits.
Bank deposits are not all financial wealth, though they're a substantial share of it. Even given that, the facts, from the US Federal Reserve (it runs both FRED and currency.gov), are that there is nearly ten times the amount of financial wealth in bank deposits as there are green pieces of paper representing that wealth.
Federal Reserve Notes are currency used for some forms of financial transactions. They are not equivalent to the total amount of financial wealth, most of which is noted in accounts of various types.
You might also want to familiarise yourself with the various measures of money supply (spoiler: it's not little green men, erm, pieces of paper):
All money has value for one reason: because people think it's valuable. It doesn't matter if it's cigarettes in prison, giant stone discs in Micronesia, or bits on a server owned by your bank.
Even more to the point is how money is a sort of illusion : it's a signal that allows for better allocation of real (and imaginary) resources in the economy.
Better question on that front is how it’s legal. It’s not what congress passed or the FDICs charter / mission statement. So it’s kinda just “we’re doing it, even if it’s illegal”
Kinda like how they gave everyone a year or more where they could live in a place without paying rent via some BS CDC power that didn’t exist.
> Better question on that front is how it’s legal.
Because, when, after allowing FDIC broader discretion to decide how to resolve bank failures so long as at least insured balances were covered from the creation of the FDIC, Congress narrowed that discretion in 1991 by adopting the least-cost rule which normally prohibits FDIC from committing more from the Deposit Insurance Fund than necessary to cover insured accounts, they also permitted the FDIC to choose a higher-cost resolution when the required set of officials certified the existence of a systemic risk. (The system risk provision itself precedes the least-cost rule, but when the least-cost rule was adopted, the procedure for systemic risk waa changed and the system risk privision was made an exception to the least cost rule.)
The legal loophole is that it's essentially a levy on the (other) banks, not the taxpayer. The comedy, of course, is that "bank customer" and "taxpayer" are more or less the same set of people.
Kind of, but I don’t pay any fees for my bank account(s) and I don’t expect to in the future, even with the small insurance rate increase levied by the FDIC to cover making SVB depositors whole. Making loans with my money is profitable enough for my bank that they don’t need to charge fees.
Many banks these days have zero commission brokerage accounts, in which you can hold T-bills or money market funds. Not a lot of reasons to use a "savings" account.
FDIC has broad authority to issue advance dividends on uninsured deposits, based on their estimate of what they will be able to recover from asset sales.
FDIC determined that a 100% advance dividend was appropriate, but merchandised it in a way that allows the receivership bank to continue operating as normal.
The explanation I heard was congress gave FDIC some vague exceptions to its charter because congress knew these sort of actions are politically toxic, but economically necessary(ish).