US Senators Elizabeth Warren and Tina Smith are demanding answers from a group of top US regulators about the banking sector’s exposure to crypto in the wake of FTX’s implosion last month.
On Wednesday, Warren, a Democrat from Massachusetts, and Smith, a Democrat from Minnesota, penned a letter to Federal Reserve Chairman Jerome Powell, acting chair of the Federal Deposit Insurance Corporation (FDIC) Martin J. Gruenberg, and Michael J. Hsu, the acting head of the Office of the Comptroller of the Currency (OCC).
The Senators are asking the regulators how their respective agencies are assessing the risks associated with the intertwining of crypto assets and traditional banking.
“Thankfully, the banking system has been spared of the FTX-induced turmoil. Despite the industry’s efforts to gain access to the banking system and the benefits that come with federal recognition from bank regulators, crypto is, so far, not deeply integrated with the traditional banking system. Nevertheless, it appears that crypto firms may have closer ties to the banking system than previously understood.
According to a New York Times report, Alameda, which siphoned $10 billion off the FTX exchange and into its 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.”
The Senators go on to request that regulators provide the names of specific banks under their jurisdiction that are involved with crypto activities.
FTX filed for bankruptcy last month amid accusations that former CEO Sam Bankman-Fried mismanaged the firm’s funds by loaning out billions of dollars worth of customer deposits to Alameda Research, the firm’s trading branch.
John J. Ray III replaced Bankman-Fried as CEO after his resignation on November 11th. In recent bankruptcy filings, Ray says the exchange suffered from compromised systems and faulty regulatory oversight and leadership that was made up of “potentially compromised individuals.”
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