Why is it so difficult for trading companies to simply keep the money in the reserve and never touch it unless your client wants to liquidate his share?
I know, having that huge pile of cash and not doing anything with it can lead to huuuuuge temptations, but that's what I'm paying the company to do. If I wanted to invest my funds into something I would move my money to a separate investment account that the institution can play with as they please (with some client-defined risk restrictions) and give me a percentage of profits
Because they don't make as much money that way. History has repeatedly shown us that asking companies to voluntarily forgo profit-earning opportunities does not work. Companies exist to make money and this why regulators like the FDIC exist, to ensure that financial institutions are liquid enough when things go south.
This is simply not something that financial institutions are capable of doing themselves.
This doesn't even seem like a financial regulation issue. More like a "I'm paying you to store my stuff so please store my stuff" issue. If I paid for a storage unit and the company running it sold all the stuff in it while promising "don't worry, when you want your stuff back we'll buy it back for you", I'd be pretty peeved.
“Huuuuge temptations” is the answer. At that level, the temptation is too much to bear except enforced by an external hand.
That’s why there are regulations against playing with customer’s deposits in the traditional banking sector, or else greed will make banking executives do similar things as the crypto companies.
I know, having that huge pile of cash and not doing anything with it can lead to huuuuuge temptations, but that's what I'm paying the company to do. If I wanted to invest my funds into something I would move my money to a separate investment account that the institution can play with as they please (with some client-defined risk restrictions) and give me a percentage of profits