Weekly Pizza Bits #11 - 8-May-2023
1) FDIC Recommending Deposit Insurance Reform
A 75-page report of “Options for Deposit Insurance Reform” has been released on 1-May-23. Currently, the default for Federal Deposit Insurance Corporation (FDIC) is that every single depositor’s account will be insured up to USD$250k. Now, the FDIC is considering to offer “Targeted Coverage” where business payment accounts would receive higher insurance coverage than other account types.
In the report, it’s also mentioned that
The option may extend unlimited coverage to some account types and provide limited coverage to others, or it may provide limited coverage across all account types but with different limits.
Accounts may be measurable by first distinguishing the identifier associated with the account: for example, using Tax identification number (TIN) or employer identification number (EIN) rather than a social security number (SSN).
The separation of accounts by function (payments and investments) is a key concept of “Targeted Coverage”. Large deposit accounts that are not eligible for high coverage should have clear restrictions on withdrawals to maintain a clear separation of payments and investment functions.
The primary source of run risk that generates financial stability concerns is demandable deposits, especially those deposits used for operational purposes. Business payment deposits are less easily diversifiable across banks, and business accounts in this category may become very large. Providing greater or unlimited deposit insurance to business payment accounts provides the benefits of higher insurance without extending the guarantee to large depositors whose deposits are used for investment purposes.
Increasing coverage to large deposit accounts with the most demand for liquidity would reduce or eliminate the need for depositors of such accounts to withdraw their funds out of fear for the safety of their deposits and for the continuity of their operations.
In summary, they claim “Targeted Coverage” will provide more financial stability and transparency, but this option is just a way to prioritize the protection of large corporations with huge sums of money instead of the average citizens of all classes. Just imagine that someone with $250k million dollars in the account will only be covered with significantly lower amounts of money (say a limit of $100k), while a business account with similar amount will be covered in full. It just makes the average person feel less secure in putting money into banks that may potentially fail.
I wouldn’t be surprised if PIDM, a Malaysian-version of the FDIC, also follows this footstep in light of an bank turmoil.
2) Anwar to discuss a proposal to increase employer’s EPF contribution to 20%
This proposal is going to spark a lot of debate among the working class people. On one hand, employees will be getting more money from their employers for retirement. However, employers will need to fork out more money to the employees which increases cost, thus employers may offer lower basic salaries or increments to maintain their profit margins.
A better suggestion to this is to increase the living wage of the average people instead of EPF contributions that will be locked for decades. I covered the problems with EPF in my previous article, and I think decentralized, self-sovereign wealth needs to be the main priority for everyday user to control & manage their money.
3) Failed Banks in the US - An Analysis by year, Size and More
An interesting article from the Forbes has covered the history of bank failures over the 21st century. In 2023 so far, we have 3+ banks that already failed, while more banks including PacWest Bancorp & Western Alliance are exploring a sale. However, the worst year for bank failures is in 2010, with a whooping total of 157 and a total of more than 500 bank failures since the 2008 financial crisis until 2014.
Another interesting fact from the article is that more than 95% of the bank failures happened on Friday. There’s a strategic purpose to this as banks operate Monday through Friday and close on weekends, so if the FDIC waits to take over a failing bank until Friday, it has the entire weekend to settle accounts, liquidate assets and transition to new management before customers start demanding their money.
With more banks failing, rising interest rates and more distrust in the current banking system that has happened for years, we may see more people starting to wake up and find alternatives to owning wealth outside of the banking system, such as gold & cryptocurrencies. Cryptocurrency will be a great alternative for self-sovereign wealth and a medium of exchange for goods & services.
4) Over 450k+ Bitcoin pending transactions are currently stuck
With the introduction of Ordinals, a special NFT-like feature where people embed data such as a JPG image into an Ordinal number, over 450k transactions are currently pending on the Bitcoin blockchain. The network congestion caused the Bitcoin transaction fees to surge from the lowest recorded value of $0.87 as of 23-Apr-23, all the way up to as high as $19.21 as of 7-May-23 as the consensus time couldn’t scale as fast as the increase in Bitcoin transactions.
Back when I review Bitcoin, I broke down the 4 key disadvantages of Bitcoin in terms of very high energy consumption, expensive to operate, unsustainable with the Bitcoin halving events & electricity bills, and the progressive centralization of miners. Now that Bitcoin is being expanded to support smart contracts in the case of Taproot & NFT features in Ordinals, the lack of network upgradability due to a limited amount of developers’ contributions as compared to other smart contract-driven blockchains such as Ethereum & Cardano, we may see more BTC transaction traffic moving over to the layer-2 state channels such as the Lightning Network, or other blockchain ecosystems that is scalable and supports wrapped BTC.
Even in Luno, it takes RM142.79 worth of BTC fees to send 0.015 BTC (~RM1,900) out from Luno. This makes transaction fees 14 times more expensive than wire fees, which strongly suggest Bitcoin is way behind many other blockchains that have solved the scalability issues at the layer-1 level.
5) A new country has been added in DuitNow's cross-border list
If you think cryptocurrencies are the only way to make cross-border transactions cheap & instant, DuitNow, the most popular instant & fee-free money transfer feature in Malaysia, has been implementing cross-border payments among other South-East Asia countries such as Singapore & Thailand. Today, they welcomed Indonesia into the list of countries that supports cross-border payment. This means Malaysians & Indonesians will be able to make instant retail payments in both countries by scanning DuitNow QR codes and Indonesia’s QRIS codes.
Similarly, Malaysians, Singaporeans & Thais can also make retail payments between their countries by scanning DuitNow, NETS & PromptPay QR codes. This is great news as Malaysians will be able to make payments in Thailand, Singapore & Indonesia with their DuitNow app without the need for high fees & waiting times.
Hopefully, we can see this feature expand towards many other countries, with embedded blockchain technology & privacy-enhanced digital identity to enhance better privacy & transparency features for the users.
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