At Hearing, Warren Defends FDIC Chair from Baseless Attacks and Calls on Regulators to Keep Crypto out of Banking System after FTX Collapse
“Our banks stayed safe even as crypto imploded because many of President Biden’s regulators, like Acting Chairman Gruenberg, fought to keep crypto from becoming dangerously intertwined with our banks.”
Washington, D.C. – At a hearing of the Senate Banking, Housing, and Urban Affairs Committee, U.S. Senator Elizabeth Warren (D-Mass.) responded to baseless attacks against Federal Deposit Insurance Corporation (FDIC) Acting Chair Martin Gruenberg, calling out former FDIC Chair Jelena McWilliams for breaking the law when she blocked a vote to help hold big banks accountable before ultimately resigning. Travis Hill, the nominee for FDIC Vice Chair who previously worked for McWilliams, confirmed that the Department of Justice’s Office of Legal Counsel determined that McWilliams exceeded her authority when attempting to block a vote brought by the FDIC Board majority.
Senator Warren then addressed the recent collapse of crypto platform FTX, noting that the contagion in the crypto industry has largely not impacted the traditional banking system. Senator Warren warned against the risks of integrating crypto assets into the banking system, which would jeopardize consumers and the financial system.
Transcript: Nomination Hearing
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Wednesday, November 30, 2022
Senator Elizabeth Warren: Thank you, Mr. Chairman, and congratulations to our nominees.
I just want to take a minute to respond to the baseless attacks against Acting Chairman Gruenberg. My Republican colleagues continue to accuse him of wrongdoing after the previous FDIC chair, Jelena McWilliams, tried to block a vote to get public feedback on bank merger rules last year.
McWilliams simply announced that she was blocking the request of the board majority without citing any legal basis whatsoever. And, when she was asked to produce a legal basis, she resigned.
That seems clear enough that McWilliams was in the wrong, but for those who insist on re-litigating the issue, the Department of Justice’s Office of Legal Counsel released a legal opinion on it in July of this year.
Mr. Hill, you worked for the previous FDIC chair, Ms. McWilliams, so let me ask you. In its July memo, did the Office of Legal Counsel determine that a majority of the FDIC Board have the authority to bring items before the board for a vote?
Travis Hill, Member and Vice Chairperson Designate, Board of Directors of the Federal Deposit Insurance Corporation: I believe that was the opinion of the Department of Justice in that memo.
Senator Warren: Thank you. That’s exactly what the OLC opinion states. It fact says, it says quote, “the Chairperson of the Federal Deposit Insurance Corporation does not have the authority to prevent a majority of the FDIC Board from presenting items to the Board for a vote and decision,” end quote. And that is exactly what Ms. McWilliams tried to do.
In other words, the former FDIC Chair broke the law when she blocked a vote to help hold big banks accountable, and she got caught and she resigned.
So Mr. Chairman, I’d like to enter into the record the OLC opinion that makes it clear that Acting Chairman Gruenberg and the other current FDIC board members were following the law, while the previous Republican FDIC chair unlawfully exceeded her authority.
Senator Sherrod Brown, Chair, Senate Committee on Banking, Housing, and Urban Affairs: Without objection, so ordered.
Senator Warren: Thank you. Now that we have that cleared up, let me turn to another issue, and that’s crypto.
The implosion of crypto platform FTX revealed that one of the industry’s major players was not much more than a handful of magic beans.
And now, thousands of mom-and-pop investors have lost their savings, and many more are being squeezed by the contagion that FTX’s collapse has triggered throughout the crypto industry.
Mr. McKernan, your current job is advising Republicans on the Senate Banking committee, so I assume you’ve been watching this closely. From what you can tell so far, has the contagion that has spread through the crypto industry shaken our traditional banking system?
Jonathan McKernan, Member Designate, Board of Directors of the Federal Deposit Insurance Corporation: No senator.
Senator Warren: No, and that is the good news. But that didn’t happen by accident. Our banks stayed safe even as crypto imploded because many of President Biden’s regulators, like Acting Chairman Gruenberg, fought to keep crypto from becoming dangerously intertwined with our banks. And he did this despite the Trump Administration’s and crypto boosters’ aggressive efforts to bring crypto and all its risks into traditional banking.
So, Acting Chairman Gruenberg, if the crypto boosters had gotten their wish and a bunch of banks that the FDIC insures were all in on crypto, for example, holding FTX’s tokens on their balance sheets or accepting crypto tokens as collateral for loans, would our banking system be less safe than it is today?
Martin Gruenberg, Member and Chairperson Designate, Board of Directors of the Federal Deposit Insurance Corporation: I would think so, senator.
Senator Warren: You want to expand on that a little?
Acting Chair Gruenberg: Well, we’re dealing, I mean, the evidence is clear now. We had companies that were engaging in highly speculative activity, highly traveled, and vulnerable to a loss of confidence and a run.
They did not have direct exposures to the insured financial institutions, and as a result, the failure of those firms was really limited to the crypto space, and ended up not impacting the insured banking system.
Senator Warren: So this tells us about the power of keeping a strong line between the traditional banking system and the crypto world.
You know, more than a trillion dollars’ worth, and counting, of crypto have gone up in smoke so far this year, and reports piled on top of reports have shown that the crypto industry is powered by fraud and money laundering. Even so, some industry boosters still argue that these toxic crypto assets should be more integrated into the real banking system, which would mean that the next time crypto stumbles, taxpayers would be on the hook to bail out these banks. No thanks on that one.
Thank you, Mr. Chairman, I’ve done my questions.
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