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Comment by alexjplant | Hacker News Reader

Aren't retail and investment banking separate spaces? Aren't depository accounts insured to the tune of a quarter of a million dollars by the FDIC? Isn't Voyager a crypto exchange?

I tend to keep my money in local credit unions as well, but I'm struggling to understand how this discussion is germane to Voyager's actions here.

EDIT: See https://www.investvoyager.com/blog/voyager-is-now-fdic-insur...

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Because Voyager has tried to position itself as a crypto-based alternative to banking. From the front page:

> Build your wealth

> Earn up to 12% annual rewards. Beat your bank by earning top rewards each month on 39 digital assets with no lockups.

They explicitly touted their benefits over using a traditional bank before they issued this notice. They also issued debit cards that they are now deactivating.

Fundamentally, crypto has staked its future on replacing the banking system, citing various issues with the Fed, etc. But the regulatory environment in banking (the FDIC) creates a much more stable environment in which to transact than these platforms do.

In particular, the Voyager home page says that "USD" and "cash" deposits are FDIC-insured, while the debit card landing page talks about how you can earn rewards while "spend[ing] USD Coin like cash".

I can easily imagine a naive consumer coming away from this with the incorrect impression that USD Coin deposits, being equivalent to USD, are insured to the same extent.

They can be the same. Voyager looks like they have their sweep account as a brokered deposit with an FDIC insured bank. This similar to other investment firms. I think Etrade lets you have up to $1M for FDIC insurance spread across 4 banks but you have to set it otherwise it sits in a money market or equiv.

Good thing is that voyager shouldn't be able to touch money in the sweep accounts.

https://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bl...

>the Financial Services Modernization Act of 1999...repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies, and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company

FDIC insurance ends up being the main guarantee of safety, especially in the modern era of 0% reserve requirements.

>especially in the modern era of 0% reserve requirements.

Total red herring; reserve requirements went away but they were irrelevant because banks were holding massively in excess of the required reserves in any case.

> especially in the modern era of 0% reserve requirements

They’ve been replaced with capital requirements, which make a lot more sense in modern finance than reserve requirements.

What's the current state of those capital requirements in US banks?

Is this the latest requirement? https://www.federalreserve.gov/newsevents/pressreleases/bcre...

(4.5%)

And how do banks actually measure up to this minimum?

The Fed runs stress tests all the time and currently the banks are preforming perfectly during them.

which means the tests are not stressing. That is a good thing as they test for conditions that previously resulted in crashes. But it could also be a bad thing if the banks adapted to formally pass tests while straining their business with schemes that are overlooked

We do know, at least from the last crisis, that so far the US stress tests have been effective at accurately gauging bank strength.

(This is in contrast to the ECB stress tests during the Euro crisis, where repeatedly banks that had passed a stress test ended up needing bailouts or falling over.)

The conclusion during COVID was that the stress tests were too stringent and COVID was much better for the banks than worst case stress tests.

Basically stress tests simulate large drops in asset values, but during COVID the trading desks made bucketloads of money when volatility was high. The financial sector is pretty resilient these days, the risky stuff mostly moved off bank balance sheets into private funds not subject to the same regulatory requirements.

The 4.5% is the baseline; subject to additional stress capital buffer (based on DFAST supervisory stress-test results) and systematically-important institution weighting.

https://www.federalreserve.gov/publications/large-bank-capit...

So JP Morgan is 11.2%; Citigroup is 10.5%; for example.

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