How does this question keep coming up? It's obvious.
1. Banks create money when they lend. This is the job that their Fed has conferred to them. They do so under a strict regulatory framework and with very tight risk requirements. Lending is where money comes from.
2. Fractional reserve works because banks are backed by the FDIC which has a massive deposit insurance fund ($125B). The FDIC has a massive line of credit ($100B) with the Treasury in case that ever runs out. And they have the authority to take possession of failed institutions and sell the accounts like they did in 2008 with WaMu (under OTS). When WaMu went under the bank was sold to JPMorgan and nobody lost a penny without touching the DIF.
3. FTX was backed by nobody and nothing.
4. We know how banks operate, it's public and transparent. If FTX told depositors it was taking their money and gambling with it, and planned to stick them with the losses while keeping all the profit for themselves (a) that would be one thing and (b) nobody would sign up for that.
> Most deposits are used for gambling by banks
No they're not.
> The US fractional reserve requirement for banks is 10%.
No it's not, it's 0%.
> If SBF was gambling with only 10B of 16B that's a 37% reserve - conservative by banking standards.
No it's not. It's wildly irresponsible by any standard.
1. Banks create money when they lend. This is the job that their Fed has conferred to them. They do so under a strict regulatory framework and with very tight risk requirements. Lending is where money comes from.
2. Fractional reserve works because banks are backed by the FDIC which has a massive deposit insurance fund ($125B). The FDIC has a massive line of credit ($100B) with the Treasury in case that ever runs out. And they have the authority to take possession of failed institutions and sell the accounts like they did in 2008 with WaMu (under OTS). When WaMu went under the bank was sold to JPMorgan and nobody lost a penny without touching the DIF.
3. FTX was backed by nobody and nothing.
4. We know how banks operate, it's public and transparent. If FTX told depositors it was taking their money and gambling with it, and planned to stick them with the losses while keeping all the profit for themselves (a) that would be one thing and (b) nobody would sign up for that.
> Most deposits are used for gambling by banks
No they're not.
> The US fractional reserve requirement for banks is 10%.
No it's not, it's 0%.
> If SBF was gambling with only 10B of 16B that's a 37% reserve - conservative by banking standards.
No it's not. It's wildly irresponsible by any standard.