Warren: FTX contagion would be worse if banks were ‘dangerously intertwined’ with crypto

Warren: FTX contagion would be worse if banks were ‘dangerously intertwined’ with crypto

During a Senate Banking Committee hearing, Senator Elizabeth Warren called struggling cryptocurrency exchange FTX “not much more than a handful of magic beans.” The Committee is considering the appointment of the Federal Deposit Insurance Corporation’s acting chairman, Martin Gruenberg, by President Joe Biden as the agency’s chairman.

The spread of crypto industry contagion could have been worse if state-insured banks were “dangerously entwined with crypto,” according to Sen. Elizabeth Warren, D-Mass. Referring to the crypto industry during a Senate Banking Committee hearing, Warren slammed struggling cryptocurrency exchange FTX as “not much more than a handful of magic beans.” The hearing focused on several candidates for the Biden administration, including Martin Grünberg, acting president of the Federal Deposit Insurance Corporation. Biden nominated Grünberg to chair the agency.

“Our banks remained safe even as cryptocurrency imploded because many of President Biden’s regulators, such as interim President Gruenberg, fought to ensure cryptocurrency would not become dangerously intertwined with our banks. This is despite the aggressive efforts of the Trump administration and cryptocurrency advocates. Bringing cryptocurrency and all of its risks into traditional banking,” Warren said.

Washington lawmakers and regulators are taking a closer look at cryptocurrencies in the wake of the FTX disaster. The company filed for bankruptcy in Delaware earlier this month, shocking the industry. BlockFi, the cryptocurrency lender, recently filed for bankruptcy, citing its exposure to FTX. Warren pressed Grünberg on whether the banking system would be “less secure” if FDIC-insured banks were fully involved in the crypto market. Warren’s examples included whether banks carried FTX tokens on their balance sheets or accepted crypto tokens as collateral for loans.

I think so,” Grünberg said. “The evidence is now clear. We had companies involved in highly speculative activity, heavily leveraged and vulnerable to losing confidence in the run. They had no direct exposure to the insured financial institutions, and as a result, they failed. This company was limited to the crypto space.

The Massachusetts Democrat warned that future integration of “toxic crypto assets” into the banking system could cost taxpayers money. “Some industry champions are still arguing that these toxic crypto assets should be further integrated into the real banking system, which would mean taxpayers will be forced to bail out these banks the next time crypto stumbles,” Warren said to bail out the company if it hits a crisis. SoFi, earlier this year, received Federal Reserve approval to be a bank holding company and be treated as a financial holding company on the condition that it divest itself of SoFi’s digital assets and separates or conforms its activities to the law within two years.

Later in the hearing, Sen. Pat Toomey, R-Penn., the top Republican on the Committee, came out in defense of the industry. “I believe there is a risk that some of us will conflate an individual’s wrongdoing with how they commit their wrongdoing. I don’t know anything about what happened with FTX, and I’ve studied it very closely, forcing us to blame crypto,” Toomey said.

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