In light of the FTX incident, United States lawmakers are putting pressure on key federal financial regulators to investigate banks with ties to cryptocurrencies.
Senators Question Banks
Democratic Senators Elizabeth Warren and Tina Smith have written to multiple federal agencies and regulators, questioning the close ties between crypto markets and traditional banking. The aftermath of the FTX collapse has stirred up trouble, especially among lawmakers who have intensified their scrutiny of the industry even more since then. In this case, both the Senators, who are members of the Senate Banking House and Urban Affairs Committee, have addressed the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency in their letter.
An excerpt from the letter reads,
“While the banking system has so far [been] relatively unscathed by the latest crypto crash, FTX’s collapse shows that crypto may be more integrated into the banking system than regulators are aware.”
“Banks Had Close Ties To Crypto”
There have been other instances of associations between FTX and financial institutions. Several noteworthy banks, like Silvergate Capital, Provident Bancorp, Metropolitan Commercial, Signature, and Customers Bancorp, have all landed in hot water due to their significant exposure to the FTX ecosystem. The Senators’ letter referenced several banks and financial corporations struggling after prolonged exposure to FTX.
The letter wrote,
“It appears crypto firms may have closer ties to the banking system than previously understood. 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.”
Banks In Trouble After FTX Crash
Almost 90% of Silvergate’s overall deposit base consisted of crypto deposits. In addition, more than 50% of the equity capital for Provident bank consisted of crypto loans. In the aftermath of the crash, Provident bank is experiencing losses as high as $27 million.
According to a report in The New York Times, FTX’s sister company Alameda Research had an $11.5 million investment in the Washington state-based Moonstone Bank. The latter’s parent company FBH Corp was headed by Jean Chalopin, who is also the Chairman of the Bahamas-based Deltec Bank, which had a working relationship with stablecoin issuer Tether (an FTX trading partner).
Regulators’ Attention On SBF
On the other hand, regulators have been focusing most of their attention on ex-FTX CEO Sam Bankman-Fried. The Texas Securities Board has summoned him to investigate whether Texas securities laws were violated by offering unregistered securities products through FTX’s yield-bearing service.
Other regulators, like the Financial Services Committee and the Senate Banking Committee, have also summoned Bankman-Fried to hearings discussing the collapse of the FTX ecosystem.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
