$18 trillion in debt. $18 trillion is a lot of money...

[Razick]

Haha I am not going to read through all my bank terms again but I doubt they have a disclaimer about fractional reserve banking, like "oh yea and   if you try to withdraw your money at the same time as everyone else then we can't give you your money, sorry". But yea if we sign a contract actually saying this then they can do it as they want.

Scanning my bank's agreement, this is all I found:

If you have an Interest Checking account, Money Market Account, Online Savings Account, or IRA
Online Savings Account, as required by federal regulations, we retain the right to require you to
provide us with seven (7) days written notice before withdrawing funds.

I think the reason that it's not clearly outlined is that unlike an investment account, you are the legal owner of the deposit. If you buy stocks or something, you have a right to the stock, but not the original deposit. With a bank account, they are legally required to repay you the money on request subject to terms such as the one above.

Still, it's a well known business model, and it's possible to keep most of your money in cash. Banks offer free checking, so you aren't obligated to store lot's of money. You can use your bank just to cash checks if you want.

And really a lot of business models break down under the stress of everyone demanding what they are owed at once. Imagine everyone having a car accident at once. Insurance companies would have an issue.

My point is that banks aren't lying and saying "we hold all of your deposits in a cash vault and pay you interest just because we like you" they are holding your money because they can profit from it, and it's a mutually beneficial relationship in all but exceptional circumstances.

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[virtfund]

I hope nobody actually believes the dollar is definitively on the brink of collapse. Definitive decline, probably. Definitely not imminent collapse tho.

[Razick]

So this was interesting. I thought I'd ask Citibank to see if they are honest about this (not my bank), but I don't think the guy I was talking to even knew until he researched it. I was laughing because he seemed to have no idea, but his explanation at the end actually makes sense: Citibank loans out profits from credit cards and deposits checking and savings balances with the Fed.

So in Citibank's case, they presumably don't practice fractional reserve with consumer checking or savings accounts.

A Citi representative will help you in approximately 0 minutes 3 seconds.
For your protection, we'll never ask you for passwords, PINs, User IDs, security words or any part of your social security number during a chat. Other information may be required to help us verify your identity. This chat may be recorded or monitored for quality purposes.

PS: I felt like a moron asking these questions, but anyway.

You are now chatting with Destin.
Destin: Welcome to Citibank. My name is Destin. How may I assist you today?
Destin: May I know who am I chatting with today?
You: Hi, I am wondering what Citibank does with funds customer's deposit. Does it just sit in a vault until it's withdrawn?
Destin: Are you referring to Check deposit?
You: I am referring to money that is in an account. What is done with it until it's withdrawn?
Destin: Citibank does not use your money without your permission and it is safe with them till you withdraw it for you use.
Destin: *your
Destin: Citibank pay you interest if you keep large sum for longer period of time.
You: So it's not loaned out or anything, it just sits in a vault?
Destin: We provide loans from the money we earn from the interest on credit cards and not from your money as you can use it anytime you want.
You: Well then how do you pay interest on deposits?
Destin: If you keep your funds in our account we get interest on the collective sum from the Government and we distribute a part of it to your account.
You: Oh, okay, that makes sense. I appreciate your time.

[OROBTC]

...

Razick

I could very well be wrong, but it has always been my understanding that once you deposit any funds into a bank account (probably any account except for specific "trust" accounts), the bank is free to loan that money out as it sees fit, subject to reserve requirements.

It is no longer "your money" once you deposit it.  You become and "unsecured creditor" to the bank.  They OWE you the money.  But, you may not be first in line if a bank-run starts.

The conversation you had with Citi seems to be a tad deceptive on their part.  Or else Citi does not have their "A-Team" answering the Customer Service lines.  LOL

/LOL

[Razick]

...

Razick

I could very well be wrong, but it has always been my understanding that once you deposit any funds into a bank account (probably any account except for specific "trust" accounts), the bank is free to loan that money out as it sees fit, subject to reserve requirements.

It is no longer "your money" once you deposit it.  You become and "unsecured creditor" to the bank.  They OWE you the money.  But, you may not be first in line if a bank-run starts.

The conversation you had with Citi seems to be a tad deceptive on their part.  Or else Citi does not have their "A-Team" answering the Customer Service lines.  LOL

/LOL

Yes, you are absolutely right (except that from what I understand depositors are given priority in a bank run, and even if not, the FDIC does insure deposits). I was making an effort to prove that banks are upfront about the fact that they loan money, but Citi didn't exactly support my point lol. I was surprised to see that they supposedly keep all deposits with the Fed, and I wonder how accurate that is.

[Jeremycoin]

Wow... $18 trillion is a very big value
I wandering what can I do with all of that money

[Derek492]

If it an interest bearing account...then in the event of a run of a bank failure, your considered an unsecured creditor to the bank and are last in line to get your money out...that's the risk. That's why its more safe to put your money in a non-interest bearing account. If you take on more risk of losing it, you go with interest bearing account.

[Q7]

Somehow I always thought these things are really amazing and how it could actually survived so long and the bubble kept on getting bigger and bigger without blowing up. And imagine if these things were to really blow up some day, I wonder what kind of catastrophe we should be expecting. I don't know, I just can't imagine. And that is where bitcoin matters.

[johnyj]

Haha I am not going to read through all my bank terms again but I doubt they have a disclaimer about fractional reserve banking, like "oh yea and   if you try to withdraw your money at the same time as everyone else then we can't give you your money, sorry". But yea if we sign a contract actually saying this then they can do it as they want.

The loop has almost been closed, even theoretically they have the bank run risk, in reality banks already made that nearly impossible

The whole banking network works like a large exchange, once you put your money in any one of these banks, it is just like putting your bitcoins in a large exchange

The difference is: You can withdraw bitcoin any amount any time, but with banks, you can only withdraw cash to a limited quota each day on ATM. And when you do electronic withdraw from Bank A to Bank B, it is just like some internal transactions in this large exchange, it just moved some numbers from Bank A to Bank B, and in case Bank A are running out of numbers (where Bank B are running up on numbers simultaneously), they just need to borrow a bit from Bank B (LIBOR), these transactions does not affect banks liquidity. Even millions of people withdraw money from their banks and put into another bank, the banking system in a whole will not be affected

Once they permanently removed cash withdraw option, then the loop will be totally closed, all the money is moving around inside banking networks, banks will always have money to deal with withdraw, bank run will never happen

[johnyj]

Somehow I always thought these things are really amazing and how it could actually survived so long and the bubble kept on getting bigger and bigger without blowing up. And imagine if these things were to really blow up some day, I wonder what kind of catastrophe we should be expecting. I don't know, I just can't imagine. And that is where bitcoin matters.

It's really amazing, but there is a reason: In commercial oriented society, people need some kind of value certificate to do the trade, it should have universal acceptance, so fiat money is the closest candidate

[oblivi]

The thing is, the dollar will never effectively collapse as long as people keep accepting dollars all over the world. They can keep getting away with the printing money thing as long as people accept said money.