U.S. doesn’t want to be entangled with Silicon Valley bank collapse: Binance boss

in a now deleted Twitter On March 12, Binance CEO Changpeng Zhao spoke about the collapse of Silicon Valley Bank (SVB) and the subsequent bailout of depositors by the U.S. government. In a tweet, Zhao said the government did not want to be entangled.

Binance boss: SVB bailout made banks reckless

He believes that once the government bails out a bank, it creates a dilemma because if they don’t bail out a bank in the future, they will be questioned why they did it before. As a result, banks have “zero incentive to manage risk, leading them to take the most risk for the greatest return.”

Changpeng Zhao Tweets: Archive

The bailout of SVB could be seen as a pre-emptive move to prevent a potential banking crisis. Regulators have been working in secret to find a buyer for the bank. Meanwhile, bitcoin prices rallied on March 13, rising above $24,500.

Bitcoin Price March 13 | Source: BTCUSDT on Binance, TradingViewBitcoin Price March 13 | Source: BTCUSDT on Binance, TradingView

The collapse of Signature Bank further fueled fears of a possible contagion in the banking sector. All SVB depositors will be protected and able to withdraw money from March 13, the government announced. In addition, measures will be taken to protect the bank’s customers and prevent further bank runs.

US Treasury Secretary Janet Yellen acknowledged that the collapse of SVB is concerning and that the administration is designing appropriate policies to address it. She also assured the public that the U.S. banking system is “safe, well-capitalized, resilient and tested.”

Even so, the situation has raised concerns about the fragility of the banking system and possible future failures. Zhao’s comments noted that if banks knew they would be bailed out in the event of failure, they would have little incentive to manage risk.

That has raised concerns because it could lead to other failures if the bank continues to take risks. Subsequently, this would destabilize the wider financial system.

Financial Stability Matters

According to Changpeng Zhao, resilience and stability require greater transparency, accountability and a focus on protecting depositors. It also requires banks to take responsibility for managing risk, rather than relying on government bailouts to protect them from the consequences of their actions.

While the Treasury’s action could prevent a potential crisis, it also raises questions about whether they should have bailed out private banks first.

Many argue that regional banks that take unnecessary risk should be allowed to fail, while the government should focus on protecting depositors and preventing risk contagion to risk-averse banks.

Featured image via Drew Angerer/Getty Images, chart via TradingView

Information source: compiled from NEWSBTC by 0x information.Copyright belongs to the author, without permission, may not be reproduced

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