Tina Smith and Elizabeth Warren of the United States are requesting answers from a group of US regulators on crypto exposure in the banking sector. This is following the collapse of FTX last week.
Wednesday’s meeting saw Warren, a Democrat representing Massachusetts, and Smith, a Democrat representing Minnesota, sent a note to Federal Reserve Chairman Jerome Powell. He was acting chief executive officer of the Federal Deposit Insurance Corporation. Martin J. Gruenberg was the FDIC’s acting chairman. Michael J. Hsu was the acting head of the Office of the Comptroller of the Currency.
Senators have asked regulators to explain how they assess the risk associated with intertwining traditional and crypto assets.
“Thankfully, the banking sector has not been affected by the FTX-induced turmoil. Despite efforts by the industry to gain access to banking and the benefits that come from federal recognition of bank regulators crypto is not fully integrated with the existing banking system. However, crypto firms could have closer ties with the banking system than was previously believed.
A New York Times report says that Alameda took $10 billion from the FTX Exchange and invested it in its coffers. The scheme was coordinated by Sam Bankman Fried and other FTX and Alameda executives.
The Senators request that regulators identify banks in their jurisdiction that are involved in crypto activity.
FTX declared bankruptcy last month after allegations that Sam Bankman-Fried, former CEO, mismanaged the company’s finances by loaning billions of dollars of customer deposits to Alameda Research (the firm’s trading arm), and mismanaged its funds.
John J. Ray III was appointed Bankman-Fried’s CEO, replacing him on November 11th. Ray has stated in bankruptcy filings that the exchange suffered from a compromised system and faulty regulatory oversight. He also claims that there was leadership that was comprised of “potentially compromised” individuals.
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