The aftershocks of FTX’s bankruptcy will be felt for many months. The collapse of the crypto exchange and the potential loss of billions in value has fueled demands for regulatory oversight on Capitol Hill with renewed vigor.
Earlier this week, Senator Elizabeth Warren and Senator Tina Smith, co-signed two letters demanding information on crypto asset firms and regulated banks. One letter was addressed to Fed Chair Jerome Powell and the other to Acting FDIC Chair Martin Gruenberg.
The letter requests answers to multiple questions about the banking industry and crypto. To quote the missive:
“… 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 fact that an offshore hedge fund that was basically a crypto firm was buying a stake in a tiny bank for multiples of its stated book value should have raised massive red flags for the FDIC, state regulators and the Federal Reserve…It’s just astonishing that all of this got approved.”
The two Senators note that other banks also have a relationship with Alameda/FTX. Named are Deltec Bank, Silvergate Capital, Provident Bancorp, Metropolitan Commercial Bank, Signature Bank, and Customers Bancorp.
Senators Warren and Smith ask if the two entities are investigating crypto firms and relationships with banks while asking for a list of banks engaged in crypto and more.
The letters are available below.
Letter to Regulators Banking System Exposure to Crypto Warren Smith 12.7.22