Senator Sherrod Brown, Chairman of the Senate Banking Committee, has sent a letter to the US Department of Treasury Secretary Janet Yellen expressing his concerns following the bankruptcy filing of FTX. The crypto exchange, once one of the largest crypto exchanges in the world, filed for Chapter 11 bankruptcy earlier this month following a “run on the bank” type event.
Brown tells Secretary Yellen that FTX’s collapse “highlights many of the troubling risks in the crypto asset markets.”
Noting that FTX failed to “exercise basic corporate controls, Senator Brown asks Secretary Yellen to coordinate legislation to provide further oversight of the crypto industry.
“Although press reports indicate FTX’s failure began as a liquidity crunch that quickly exposed an alarming fraud, FTX’s business model combined three of the most common hazards in financial markets—leverage, illiquid holdings, and extreme concentration. In the past, that dangerous combination triggered the failure of Long-Term Capital Management, Lehman Brothers and other banks exposed to risky mortgage bonds, and recently, Archegos Capital Management. Each of those failures should have been a lesson to market participants. Unfortunately, that lesson is rarely learned.”
Brown said he appreciated Secretary Yellen’s partnership in developing a crypto framework adding that regulators and Congress must work together to get things right.
The letter is available here.