• Credit Suisse’s crisis sparked a response from Binance CEO Changpeng Zhao, who questioned the need for costly bailouts of banks using taxpayers’ money.
• New banks face difficulty entering the market as they are required to operate in the same way as failing banks.
• JP Morgan believes that writing down AT1 bonds will have a ripple effect on investors and lead to an exponential increase in costs across the sector.
Binance CEO Questions Banking Crisis In The United States
Credit Suisse’s recent financial crisis has led to Binance CEO Changpeng Zhao questioning the need for costly bailouts of banks using taxpayers’ money. JP Morgan has warned that writing down AT1 bonds could cause a contagion effect across the sector and result in an exponential increase in costs.
Bank Failures
Banks are often portrayed as safe but are not immune to failure when they can no longer meet their obligations, cracking whenever there are bank runs – as was recently observed with Silicon Valley Bank (SVB). The same banks keep failing, triggering a crisis, which leads to a costly bailout process, often using taxpayers’ money to maintain trust in the financial system.
Difficulty For New Banks To Enter Market
According to CZ, it is incredibly hard for new banks with better ideas to get approved by the Federal Reserve, the United States central bank. This prevents new and innovative ideas from entering the market and provides customers with fewer options for banking services.
Merger Of Credit Suisse And UBS Group
The merger of Credit Suisse and UBS Group is set to wipe out Credit Suisse’s additional tier 1 bonds (AT1 bonds) worth over $17 billion which could affect investors and cause a ripple effect on other parts of the financial market.
Conclusion
Changpeng Zhao’s criticism highlights how innovation needs competition in order for it thrive within banking services and provide customers with better options. The difficult barrier-to-entry faced by new entrants highlights how current regulations may be preventing this type of progress from taking place at present.
