> Banks have insurance policies, both private and federal, that would cover the losses.
The federal insurance policy covers you if, after operating this way (or for some other reason) the bank ends up without money to cover your account (and, the regulation that comes with the insurance means that it's more likely that the Federal government will force the sale of your bank to one that does have extra money to cover your account even before that happens.)
But banks still operate as described (and using some of their pool of assets to buy private insurance is functionally the same as just adjusting the balances of people it is compensating for losses and increasing risk to others by doing so, except it smooths things a bit over time at the expense of higher average cost.)
Banks do not take money from other accounts to cover operating losses, lol, thats almost certainly several crimes. [citation needed].
> But banks still operate as described (and using some of their pool of assets to buy private insurance is functionally the same as just adjusting the balances of people it is compensating for losses and increasing risk to others by doing so, except it smooths things a bit over time at the expense of higher average cost.)
It's really not. Customer deposits are segregated from the operating accounts in accordance with applicable law. You're not suggesting they're taking payroll out of customer deposits are you?
> Banks do not take money from other accounts to cover operating losses
Banks don't keep money segregated in accounts.
Banks have reserves, and accounts basically record the right of people to draw money.
When they cover a fraud loss from one account by increasing the balance for that account to make the owner whole, they are doing exactly what crypto.com would be doing. Neither involves taking balances from others accounts, but both increase the risk of inability to cover accounts (including those of other people) as a result. Now, yes, banks provide consumers with more protection against the risk this creates, and are regulated in ways which make them less likely to do it to an extent which would create as much risk as a hype driven crypto exchange in the first place, but in terms of the basic mechanics, it is not any different than what has been suggested.
The model of money actually being held segregated in an account works for things like lawyers holding client funds and a very few other specific things, but it doesn't really capture what goes on with banks at all.
Banks might be protected under some federal legislation, but overall it doesn't really make much sense for any sizeable bank to insure themselves with some other party. For any non-rare event it's much easier to just keep some emergency money at hand. The only thing it'd make sense to insure themselves against are large scale damages that exceed the amount they can reasonably write off, but if the damages exceed the amount of funds a bank has readily available then there's little chance anyone else can cough up that amount of money other than the government.
