Warren, Smith Ask Key Regulators About Banking System’s Exposure to Crypto Risks after FTX Crash
Senators Raise Concerns to Fed, FDIC, OCC About Relationships Between Crypto Firms and Banks
Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.) and Tina Smith (D-Minn.), members of the Senate Banking, Housing, and Urban Affairs Committee, sent letters to three key banking regulators: the Federal Reserve (Fed), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), raising concerns about the ties between the banking industry and crypto firms following FTX’s bankruptcy. The senators are asking each regulator how they assess the banking system’s exposure to crypto risks.
“(I)t appears that crypto firms may have closer ties to the banking system than previously understood,” wrote the senators. “Banks’ relationships with crypto firms raise questions about the safety and soundness of our banking system and highlight potential loopholes that crypto firms may try to exploit to gain further access.”
Earlier this month, FTX, once one of the world’s largest crypto exchanges valued at $32 billion, its sister company Alameda Research, and 130 affiliated companies declared bankruptcy, triggering a crisis in the crypto market – tanking crypto values and dragging other crypto firms down. The senators note that these companies were not deeply integrated into the traditional banking system, sparing millions of people from potential turmoil – though reports show that crypto firms may have closer ties to the banking system than previously known. Alameda, which reportedly funneled $10 billion from the FTX exchange and into its own coffers under a scheme coordinated by Sam Bankman-Fried and other FTX and Alameda executives, made an $11.5 million investment in Washington state-based Moonstone Bank – more than double the bank’s worth at the time – which could be seen as a move to bypass the requirements of having a banking license.
Other federally-regulated banks – including Deltec Bank, Silvergate Capital Corp., and Signature Bank – have all come under scrutiny for relying heavily on crypto customers and are now experiencing increased volatility. Silvergate’s average deposits quarter-to-date are down more than $2 billion since September and deposits from crypto firms accounted for 90% of the bank’s overall deposits.
Given these reports of banks’ relationships with crypto firms and potential loopholes that crypto firms may exploit to gain access to the banking system, Senators Warren and Smith are asking the Fed, FDIC, and OCC to answer a set of questions about their current assessments of the relationships between the banking system and crypto firms, and the risks these relationships pose by December 21, 2022.
Senator Warren has been an outspoken advocate for regulation and oversight of crypto to protect consumers, the environment, the energy grid, national security, and the safety and stability of the financial system. Since the collapse of FTX, she has worked to hold all responsible parties accountable for possible crimes:
- On December 5, 2022, Senators Warren, Roger Marshall (R-Kan.), and John Kennedy (R-La.) sent a letter to Silvergate, the bank that reportedly facilitated the transfer of FTX customer funds to Alameda Research, seeking answers about the bank’s role in the loss of billions of dollars in customer funds.
- On November 30, 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to keep crypto out of the banking system following FTX’s collapse.
- On November 23, 2022, Senators Warren and Sheldon Whitehouse (D-R.I.) sent a letter to the Department of Justice requesting personal accountability for former FTX CEO Sam-Bankman Fried and any complicit FTX executives for wrongdoing following the exchange’s collapse.
- On November 22, 2022, Senator Warren published an op-ed in the Wall Street Journal urging federal regulators to use their expansive authorities to crack down on crypto fraud and hold the industry to the same basic standards as other financial activities.
- On November 17, 2022, Senators Warren and Dick Durbin (D-Ill.) sent a letter to Sam Bankman-Fried, founder and former CEO FTX, and John Jay Ray III, the newly appointed CEO of FTX, seeking information on the reported misuse of billions of dollars of customer funds and other disturbing allegations that continue to emerge about the company’s fraudulent and illicit practices.
- On October 25, 2022, Senators Warren and Whitehouse and Representatives Alexandria Ocasio-Cortez (D-N.Y.), Jesús “Chuy” García (D-Ill.), and Rashida Tlaib (D-Mich.) sent a letter to the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, the U.S. Department of Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, seeking information about the steps each regulator is taking to stop the revolving door between financial regulatory agencies and the cryptocurrency industry.
- In September 2022, Senator Warren sent a letter to Treasury Secretary Janet Yellen calling on the Treasury Department and the Financial Stability Oversight Council to build a strong regulatory framework for the crypto market. The letter specifically warned about FTX’s market concentration as an example of the risks that crypto could pose to consumers and the financial system.
- In July 2022, Senator Warren and her colleagues released the findings from an investigation into seven large cryptomining companies – showing extraordinarily high energy use and climate impacts from cryptomining – and called on the EPA and DOE to take action.
- In May 2022, Senators Warren and Smith sent a letter to Fidelity, asking the company to explain its decision to allow Bitcoin investments for 401(k) plans, despite the Department of Labor’s warnings about 401(k) crypto investments.
- In March 2022, Senator Warren, Senate Armed Services Committee Chair Jack Reed (D-R.I.), Senate Intelligence Committee Chair Mark Warner (D-Va.), and Senate Defense Appropriations Subcommittee Chair Jon Tester (D-Mt.) introduced the Digital Asset Sanctions Compliance Enhancement Act to ensure that Vladimir Putin and Russian elites don't use digital assets to undermine the international community’s economic sanctions against Russia following its invasion of Ukraine.
- In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren highlighted the various crypto tools that could make it easier for sanctioned individuals to hide their wealth and lessen the impact of Russian sanctions.
- In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren warned that crypto may allow Russia to dodge sanctions and urged stronger regulation of the crypto market to ensure that countries, drug traffickers, cyber criminals, and tax cheats can’t evade economic pain.
- In March 2022, Senators Warren, Warner, Reed, and Sherrod Brown (D-Ohio), Chair of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Treasury Secretary Janet Yellen, asking about the Treasury Department’s plans to enforce sanctions-compliance guidance for the cryptocurrency industry to ensure that economic sanctions remain an effective tool for achieving foreign policy goals.
- In December 2021, during a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren raised concerns over the growing risks presented by stablecoins.
- In September 2021, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to step up to address crypto's regulatory gaps and ensure an inclusive financial system.
- In July 2021, Senator Warren sent a letter to SEC Chair Gary Gensler requesting information about the agency's authority to regulate cryptocurrency exchanges and protect consumers from risks posed by the highly volatile cryptocurrency market.
- In June 2021, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy, Senator Warren delivered remarks on the opportunities and risks that digital currencies present.
- In a June 2021 interview, Senator Warren called the market for crypto the “wild west,” and said digital currency is “not a good way to buy and sell things and not a good investment and an environmental disaster.”
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