U.S. lawmakers press federal banking regulators on industry’s exposure after FTX collapse


The FTX logo is seen on a banner at the entrance to the FTX Arena in Miami, Florida on November 12, 2022.

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Top Senate Democrats lobbied top banking regulators over potential links between the industry and digital currency exchanges following the bankruptcy of major cryptocurrency firm FTX.

Senators Elizabeth Warren, D-Mass., and Tina Smith, D-Minn., members of the Senate Banking, House and Urban Affairs Committee, sent letters Wednesday to the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency asking about the close ties between crypto markets and traditional banking following the collapse of crypto exchange FTX.

The letters are the latest in a series of inquiries to various financial institutions and regulators about the supervision of cryptocurrencies.

“It appears that crypto companies may have closer ties to the banking system than previously believed,” the senators wrote to Federal Reserve Chairman Jerome Powell, Acting FDIC Chairman Martin Gruenberg, and Acting FDIC Comptroller Michael Hsu. the occ. “Banks’ relationships with crypto companies raise questions about the safety and robustness of our banking system and highlight potential loopholes that crypto companies may try to exploit to gain greater access.”

The letter referenced reports in The New York Times that revealed former FTX CEO Sam Bankman-Fried’s sister company, Alameda Research, invested $11.5 million in Washington state-based Moonstone Bank. The amount was more than twice the value of the bank at the time, according to the report.

The head of Moonstone’s parent company, FBH Corp, also chairs Bahamas-based Deltec Bank, which provides banking services to FTX’s trading partner and issuer of stablecoin Tether, according to the letter.

Silvergate Capital Corp., Provident Bancorp Inc., Metropolitan Commercial Bank, Signature Bank, Customers Bancorp Inc. are among several prominent banks that experienced increased volatility after the FTX bankruptcy. Crypto deposits made up 90% of Silvergate’s overall deposit base. The bank’s average deposits in the quarter to date fell to $9.8 billion from an overall deposit base of $11.9 billion, the letter states.

The crypto loans comprised more than half of the share capital of Provident Bank, which is experiencing potential losses of up to $27.5 million, the senators wrote.

“Banks’ relationships with crypto companies raise questions about the safety and robustness of our banking system and highlight potential loopholes that crypto companies may attempt to exploit to gain greater access to banks,” the senators wrote.

Warren and Smith acknowledged that the banking system has remained relatively unscathed by the FTX failure, but the company’s entanglement with small banks exposes potential loopholes that cryptocurrency firms could use to gain greater access to traditional financial institutions.

FTX’s investment in Moonstone could be interpreted as a way to circumvent banking licenses in the US, according to CoinTelegraph Nov. 25. Article quoted in the letter.

To better understand the banking industry’s exposure to cryptocurrencies, the senators requested responses to a list of questions, including all business relationships between FTX, Alameda, and Moonstone, by December 21.

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