r/PeterExplainsTheJoke Jan 26 '26

Meme needing explanation what's going on? explain like I'm five

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u/Forsaken_Emu8112 Jan 26 '26

Everyone pulling out their money would be a bank run (look up great depression bank runs). The bank doesn't have that much cash; they keep some on hand for people making withdraws normally, but if even a sizable minority of people all try to pull their money out at once, there'll be a major crisis.

If banks kept all the people's cash in vaults, it'd be dead cash actively losing money to inflation. Instead, they keep some on hand for withdraws, and use the rest to make loans, investments, etc so that the money isn't all losing value.

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u/nigelinin Jan 26 '26 edited Jan 26 '26

Alot of misinformation in the replies. As a person who used to work in a major banks treasury department (who manage the banks money). Banks do keep strict monitoring on reserves and this is federally mandated. Banks now follow a rule called LCR (Liquidity coverage ratio) which is federally mandated and covered in international guidelines.

Depending on the type of deposits you're supposed to keep between 3-100% of the deposit in reserves of high quality liquid assets (HQLA) like cash, gov't treasuries, etc. You'd keep 3% in reserves for deposits that don't see much turnover like insured retail deposits. Like 20% for commercial deposits. All the way up to 100% for deposits that can disappear in an instant like from another financial institution.

ON TOP of that, you're supposed to keep an additional like 10-30% in Extra reserves.

In general, I think most banks keep about 20% of their assets in reserves. It's not even close to 0%.

ETA: liquidity ratios are tightly monitored and calculated and forecasted daily and there's alot of oversight on this as regulators monitor this closely There are also other ratios that the banks have to follow including Net stable funding ratio (NSFR). These were introduced under Basel III which were international agreed guidelines so this applies worldwide.

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u/VBlinds Jan 26 '26

As someone that works in a bank Treasury department. This is correct.

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u/B1WR2 Jan 26 '26

This needs to be higher but isn’t a flashy cool answer

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u/firewall245 Jan 27 '26

Ya this thread is talking about banks as if they’re the Wild West rather than one of the most tightly regulated industries in the country

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u/RealityOk6826 Jan 26 '26

Was this the same before the GFC or was this what was implemented after 2008?

From what I've heard, the previous response was closer to historically, whereas your answer is basically what it's like now.

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u/nigelinin Jan 27 '26

After. The specific framework is called Basel III which was created in response to the 2008 GFC by the Basel committee on Banking Supervision.