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, 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.
Regulators need to step in to *support* depositors (not bail out banks)
40,000 SVB depositors Small businesses
30% will not be able to pay wages for the next 30 days
Estimated 10 employees each
120,000 jobs onlineYears of innovation in the United States on the line
— Garry Tan 陈嘉兴 (@garrytan) March 11, 2023
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.
SVB is not worth bailing out.
Digging into their financial statements shows how poorly they manage risk.
In my opinion, incompetence is only part of the explanation.
Moral hazard must be at play.
a thread.
1/
— Alf (@MacroAlf) March 11, 2023
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.
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