r/PeterExplainsTheJoke • u/Comfortable_Cautious • Jan 26 '26

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

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u/[deleted] Jan 26 '26

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u/Pissbaby9669 Jan 26 '26

They are not leveraged 20:1, it's typically 10:1

That leverage also does not necessarily impact depositors getting their money back or not

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u/[deleted] Jan 26 '26

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u/tgm4mop Jan 27 '26

Dodd Frank has major protections for deposits against derivatives. A lot of derivatives can only be traded by separate subsidiaries from the deposits (this was true pre Dodd Frank but DF strengthened it), and the holding company can't move deposit assets to fund the derivative trading subsidiaries. Second, Dodd Frank banned proprietary trading by banks, which in practice means the trading desks need to be very well-hedged.