How banks package risk under deposits

Patrick McKenzie (patio11) reads his classic Bits About Money essay on why your bank deposit is not what you think it is. He explains the capital stack that makes deposits appear riskless while funding genuinely risky businesses, and why the "no questions asked" property of money took the United States roughly a hundred years to engineer.

Patrick updates the essay with commentary on SVB's collapse, the Voyager collapse and emergency injunctions about the finer points of ACH plumbing, and the GENIUS Act's stablecoin interest ban. He argues that crypto keeps rediscovering the same hard truth: things that behave like deposits without being deposits eventually break. When they break, they will break other structures they have wormed into, and they will tend to have wormed into a lot, because deposits are extremely useful and are perceived to never break.

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Full transcript available here: www.complexsystemspodcast.com/your-bank-balance-isnt-in-the-bank/
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Links:

• The alchemy of deposits: https://www.bitsaboutmoney.com/archive/the-alchemy-of-deposits/ 
• Deposit Insurance: https://www.bitsaboutmoney.com/archive/deposit-insurance/ 
• Gift Cards: https://www.bitsaboutmoney.com/archive/gift-card-accountability-sink/ 
• Debanking (and Debunking?) https://www.bitsaboutmoney.com/archive/debanking-and-debunking/ 

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Timestamps:

(00:00) Intro
(00:20) Why revisit this essay now
(02:03) Deposits are money
(06:53) Heavily engineered structured products pretending to be simple
(09:11) Credit card charge-offs as an underappreciated welfare program
(10:16) Deposits as pink slime
(13:08) Silicon Valley Bank and information sensitivity in the real world
(19:06) Many things are quasi-deposits
(20:00) Sponsors: Mercury | Meter
(23:13) Many things are quasi-deposits (cont’d)
(25:10) Voyager bankruptcy
(32:29) How the FDIC resolves bank failures over weekends
(34:49) Making the magic happen
(35:13) The GENIUS Act and the stablecoin interest debate
(40:31) Sponsor: Granola
(47:45) Wrap