First of all, banks do have to balance their books. The 'fractional reserve' model taught in school is actually not how banks work in reality, and violates accounting rules.
Every single deposit in the bank does need to be backed by something - if banks just stored deposits then they would have to either have the full reserve backing, or other assets (cash, investments, etc.) backing every dollar. Lending seems different, but is really the same. Lending creates new money, by creating a new asset on the bank's balance sheet (the loan), and creating a matching liability of the bank (the deposit). But it is still backed by an asset - the debt to the person they lent to. (Central bank reserves don't actually come into lending, until the banks need to transfer money to other banks. Reserves are used for this, and the bank requires enough in their asset mix to maintain liquidity of their interbank transfers. They can just borrow reserves, for pretty close to the headline interest rate from other banks if they need some extra though).
So, Tether could be operating like the banking system, but, if they don't have full backing they would have to be creating matching debt for the remainder, with the intention of it being repaid. Otherwise their liabilities (the Tether) don't match their assets and it's just fraud.
Secondly, banking systems have a lender of last resort. If a bank faces a liquidity problem, they can still borrow reserves from the central bank. If Tether faces a liquidity problem, it's likely that nobody will lend them money, their business will collapse and all tethers will be rendered worthless.
Well, of course banks can become insolvent (i.e if enough people default on their loans), which is why many governments now insure people’s deposits (up to a certain limit).
But Lehman Brothers wasn’t a commercial (retail) bank, which is what I was describing. They were an investment bank, which generally don’t take deposits or directly offer loans.
First of all, banks do have to balance their books. The 'fractional reserve' model taught in school is actually not how banks work in reality, and violates accounting rules.
Every single deposit in the bank does need to be backed by something - if banks just stored deposits then they would have to either have the full reserve backing, or other assets (cash, investments, etc.) backing every dollar. Lending seems different, but is really the same. Lending creates new money, by creating a new asset on the bank's balance sheet (the loan), and creating a matching liability of the bank (the deposit). But it is still backed by an asset - the debt to the person they lent to. (Central bank reserves don't actually come into lending, until the banks need to transfer money to other banks. Reserves are used for this, and the bank requires enough in their asset mix to maintain liquidity of their interbank transfers. They can just borrow reserves, for pretty close to the headline interest rate from other banks if they need some extra though).
So, Tether could be operating like the banking system, but, if they don't have full backing they would have to be creating matching debt for the remainder, with the intention of it being repaid. Otherwise their liabilities (the Tether) don't match their assets and it's just fraud.
Secondly, banking systems have a lender of last resort. If a bank faces a liquidity problem, they can still borrow reserves from the central bank. If Tether faces a liquidity problem, it's likely that nobody will lend them money, their business will collapse and all tethers will be rendered worthless.