In a now-deleted tweet on March 12, Binance CEO, Changpeng Zhao, spoke on the failure of Silicon Valley Bank (SVB) and the U.S. government’s subsequent bailout of depositors. In the tweet, Zhao said the government doesn’t want to get entangled.

Binance Boss: Silicon Valley Bank Bailout Makes Bank Reckless

He argued 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 as to why they did it before. Therefore, banks have “zero incentives to manage risk, leading them to take maximum risks for maximum returns.”

Bailing out Silicon Valley Bank can be seen as a preemptive move to prevent a potential banking crisis. Regulators have been working behind closed doors to find a buyer for the bank. Meanwhile, Bitcoin prices increased on March 13, rising above $24,500.

Signature Bank’s failure further compounded fears that the banking crisis could spread. The government announced that all SVB depositors would be protected and able to access their money from today, March 13. Additionally, steps would be implemented to protect the bank’s customers and prevent further bank runs.

Regulators need to step in to do a *backstop* of depositors (not a bailout of a bank) 40,000 SVB depositor small businesses

30% will fail to make payroll in the next 30 days

Estimate 10 employees each

120,000 jobs on the line Years of US innovation on the line — Garry Tan 陈嘉兴 (@garrytan) March 11, 2023

U.S. Treasury Secretary Janet Yellen acknowledged that the failure of SVB was a concern and that the government was designing appropriate policies to address the situation. She also assured the public that the American banking system is “safe, well-capitalized, resilient, and tested.”

Even so, the situation raises concerns about the fragility of the banking system and the potential for future failures. Zhao’s comments pointed to a lack of incentives for banks to manage risk if they know they will be bailed out in the event of a failure.

This raises concern because if banks continue to take risks, it could lead to other failures. Subsequently, this would destabilize the broader financial system.

Financial Stability Is Critical

Changpeng Zhao argues that resilience and stability require greater transparency, accountability, and a focus on protecting depositors. It also demands banks take responsibility for managing their risks and not rely on government bailouts to protect them from the consequences of their actions.

While the Treasury Department’s actions can prevent a potential crisis, it also raises questions about whether they should be bailing out private banks in the first place.

SVB does not deserve a bailout. A deep look at their financial statement reveals how horrific they were at risk management. And in my opinion incompetence explains only part of it. Moral hazard must have been at play. A thread. 1/ — Alf (@MacroAlf) March 11, 2023

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

Feature Image From Drew Angerer/Getty Images, Chart From TradingView