They claim most of their money is not with banks (number 1 is supposedly commercial paper). Also what is with banks certainly isn't with American ones. But this goes back to the point earlier about users having no idea about the reserves. No one should use Tether and I don't trust Binance for a second, pretty sure they trade against their own users. But it's also more resilient than many think, including people who are in crypto. Binance isn't well trusted by insiders and whales. But they have a lot of customers, especially in developing countries less served by more reputable exchanges and banks. And since they offer USDT, USDC as well as their own stablecoin, whatever that's backed by, it would not be catastrophic for them even if one of the stablecoin issuers went down.
They claimed that before the banking crisis, after there was considerable pressure on them to disclose where the reserves are kept (many in crypto doubted if all the money even exists). At the time it didn't look good because what everyone wanted to hear was that they keep it as cash in a bank, so the commercial paper disclosure was seen as negative and risky. Ironically it turns out that this might actually be safer than what USDC did. They played by the book and wanted to prove full solvency by having every single dollar in bank custody. Which nearly cost them their neck with the SVB failure when parts of the funds got frozen and users panicked.
