...and Bitcoiners once again discover the need for regulation. If my bank didn't have a dollar on hand for every dollar it reported as being in customer accounts, it would be shut down by nightfall and every customer made whole.
Edit: Satire, guys. Sadly, it sometimes becomes indistinguishable from actual misconceptions. Don't believe me? Similar post from my history: https://news.ycombinator.com/item?id=7227291
Yeah yeah, satire. However I think it is important to be clear that "bitcoin" in the US is not "unregulated". There is a reason so many people were using an obviously fly-by-night exchange based out of Japan instead of an exchange based out of the US. That reason is regulation. Just because the laws don't explicitly mention the string "bitcoin" doesn't mean that anything done with bitcoin is untouchable by the law.
The aspect of bitcoin that is "unregulated" by the US government (meaning "not controlled by" the US government) is the production of bitcoin. In that respect, you can think of bitcoin as similar to a bog-standard foreign currency (which the US does not control the production of).
Your bank doesn't have a dollar on-hand for every dollar reported in customer accounts.
It does fractional reserve banking - some proportion of the bank's assets are indeed held in liquid currency, but the rest are held in assets (read: interest-bearing loans) that are worth of the sum or excess of your deposits.
If every depositor tried to withdraw from the bank all at once, the bank would be in trouble and it would likely have to rely on deposit insurance from the government to cover it.
I doubt they would have to resort to deposit insurance. Those loans have value -- they would either borrow from another bank (one of the central banks, or the Fed) against the value of those loans, or sell the loans.
Now this is another interesting thing -- the market value of the bank selling a loan fluctuates inversely with interest. If they have a loan that a customer is paying 8% on, then that loan has a market value much higher if current rates are 3%, and much lower if current rates are 12% (assuming the risk of the loan doesn't change -- that also affects its market value).
No need to be a literalist. My point being: the cash needed to cover withdrawals would have to come from outside the bank's own reserves in the scenario I described.
> If my bank didn't have a dollar on hand for every dollar it reported as being in customer accounts, it would be shut down by nightfall and every customer made whole.
Your bank almost certainly doesn't. Check out fractional reserve banking.
While normal banking regulation allows fractional reserve banking, it is also required to keep tight records of everything and pay into an insurance account that makes everyone whole when these kinds of things happen.
Edit: Satire, guys. Sadly, it sometimes becomes indistinguishable from actual misconceptions. Don't believe me? Similar post from my history: https://news.ycombinator.com/item?id=7227291