One of the biggest cryptocurrency exchanges in the world, Binance, has been dealing with growing worries about the de-banking of cryptocurrency firms. Despite suggestions that Binance could look into purchasing a bank to assure a crypto-friendly climate, the company’s CEO Changpeng Zhao, often known as CZ, recently spoke about the difficulties and constraints of such a move. CZ discussed the difficulties in a podcast interview, including legislative limitations, global correspondent banking links, and the high expenses of bank ownership.
There are worries that the number of banks supportive of cryptocurrencies is dwindling as a result of the failure of numerous US banks this year. This year, Silvergate, Silicon Valley Bank, and Signature Bank, all former significant financial partners, have all given up. Down under, Binance Australia announced a halt to its Australian dollar services as a result of the exchange’s payment source ceasing support. The exchange has yet to locate a different provider.
CZ stated that in order to create a crypto-friendly climate, Binance had looked into the prospect of buying a bank. CZ addressed a query from well-known Twitter user DegenSpartan during an episode of the Bankless Podcast that aired on May 29. DegenSpartan asked the following question in jest: “Can you please, buy a bank and make it crypto-friendly?”
“Well we did look at that,” as he continued by outlining the constraints on that line of reasoning, CZ stated: “The reality is much more complex than the concept. You buy one bank, it only works in one country, and you still have to deal with the banking regulators of that country. It doesn’t mean you can buy a bank and do whatever you wanna do.”
“If the banking regulators say, ‘Look you can’t work with crypto’ then they can take your license away if you do. So, buying a bank doesn’t prevent regulators from telling you ‘No you can’t touch crypto’,” he added.
He made it clear that reality is much more complicated than a notion. Its effectiveness would be restricted to that country alone because buying a bank would require negotiating with the banking regulators of that nation. CZ made it clear that even after buying a bank, banking regulators might still remove the bank’s license if they forbid cryptocurrency-related activity, making the crypto-friendly strategy useless.
The requirement of developing correspondent financial links, particularly with institutions situated in the United States, is another essential aspect that CZ stressed. International transactions are greatly aided by correspondent banks. According to CZ, if Binance were to acquire a bank, it would still need matching banks all over the world. However, a large number of these correspondent banks are located in the US. Binance’s capacity to conduct business internationally would be severely constrained if these banks reject cryptocurrency transactions.
CZ also went into detail about the financial side of operating a bank. Although buying a bank can seem like a good idea, the CEO emphasized that banks are expensive and produce only modest amounts of revenue for businesses. “Banks are not cheap. Banks are very expensive for very little business revenue.” “The amount of capital required is quite high, and the regulatory approval for buying a bank is the same or more as setting up a new bank, which is very onerous,” he said.
“Many banks don’t have very sound business models. They’re very risky businesses. They take the customer’s money, loan it out, try to make money, if they don’t get it back, they declare bankruptcy. In many countries, the government will save them, but I don’t like to run those kinds of businesses.” he added. Ultimately, however, CZ stated that Binance may make small minority investments into banks so that it “hopefully influences them to be more crypto-friendly.”
Additionally, the enterprise is financially expensive due to the considerable funds needed for such an acquisition and the demanding governmental approval process. CZ explained that acquiring a bank to establish a crypto-friendly environment is complex and expensive. Regulatory constraints and the need for correspondent banking relationships, especially with US banks, pose significant challenges. CZ expressed concerns about managing banks due to their risky lending practices and the potential for insolvency.
Despite these limitations, Binance may consider making minority investments in banks to influence them towards crypto-friendliness. This approach aims to encourage banks to explore cryptocurrency-related services. The de-banking trend affecting crypto companies has raised industry concerns, but Binance remains committed to promoting a crypto-friendly landscape through alternative strategies.