Let First Republic and Credit Suisse suffer the consequences of their actions.
Silicon Valley Bank and Signature Bank caused a chain reaction with banks that have not been managing their money responsibly. They should have to face the repercussions for their actions.
Cryptocurrency enthusiasts have long held a critical view of the traditional financial system, but now they have a perfect opportunity to put that mindset to work. The phrase "Let crypto burn" has been used to indicate that those who opt for operating outside of the financial system take on more personal responsibility and increased risk. However, this may be the chance for crypto natives to take a closer look at the existing financial infrastructure and challenge it. With this newfound opportunity, crypto natives may be able to make the traditional financial system more efficient and secure.
Amid the economic tumult of the past year, struggling banks have turned to long-term treasury bonds as a source of stability, buying them up during a period of near-zero interest rates. This move has been bolstered by the United States Federal Reserve's promise to keep interest rates near zero for the foreseeable future, an assurance that has provided some comfort to banks in a difficult period.
The Federal Reserve is coming under fire for its surprise about-face on interest rate policy and preferential treatment of Treasury bond holdings in its regulations and supervisory approaches. The latter move, which recently saw Silicon Valley Bank exempted from certain regulations, is viewed as giving Treasury bond holders an edge. Critics argue this is an unfair and unbalanced approach to the regulation of financial markets.
War stories are tedious but I will tell one. When I was senior counsel at House Financial Services in 2014 I subpoenaed the Fed about its management of conflicts of interest over its running a payment system. Turned up crazy stuff…they totally use regulation to help Fedwire. https://t.co/4V3qjUTkub
— J.W. Verret, JD, CPA/CVA (@JWVerret) March 16, 2023
A new report outlines the highly inefficient aspects of the traditional finance (TradFi) sector, where outdated practices are stifling the growth of new and innovative solutions. According to the report, many of these practices are a result of the government's attempts to use the banking system to advance their own political objectives. In order to promote economic growth, the report suggests letting these outdated practices burn, rather than attempt to salvage them.
Financial institutions that employ rent-seeking brick-and-mortar facades, where customer service is outsourced overseas and profits are made from overdraft fees, are in need of a revamp. Payment systems that bribe cardholders with "cash back" programs and use the consumer power to exploit merchants must also be eradicated. The current system of rent-seeking has become unsustainable and must be replaced with a more ethical and beneficial model.
Despite the increasing prevalence of cryptocurrency in recent years, the transition to a completely decentralized financial system will take time. Developers of decentralized financial (DeFi) protocols and layer-1 blockchains are still heavily reliant on the fiat economy, as the federal government only recognizes fiat dollars for tax payments and banks still dominate real estate mortgages. However, with the growing popularity of cryptocurrency and blockchain-based economic systems, a new financial landscape may be on the horizon.
As the world recovers from the economic downturn caused by the coronavirus pandemic, the financial landscape is changing. While some components of the traditional banking system are necessary for survival, the current situation has revealed that not all these components are needed in order to remain financially viable. This has opened the door for the further development of cryptocurrency-based financial services. However, for these opportunities to be realized, banks must be willing to treat crypto clients fairly and not discriminate against them.
