The FTX logo is seen on a flag at the entrance of the FTX Arena in Miami, Florida, November 12, 2022.
Marco Bello | Reuters
Top Senate Democrats pressed key banking regulators about the possible relationship between the industry and crypto exchanges following the crypto company’s bankruptcy big, FTX.
Senators Elizabeth Warren, D-Mass., and Tina Smith, D-Minn., members of the Senate Banking, House and Urban Committees, submitted Letters Next Wednesday the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency asked about the close relationship between the cryptocurrency market and traditional banking following the exchange’s collapse. Cryptocurrency translation FTX.
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The letters are the latest in a series of questions sent to various financial institutions and regulators regarding cryptocurrency oversight.
“It appears that crypto companies may have a closer relationship with the banking system than was previously understood,” the senators wrote to Federal Reserve Chairman Jerome. Powell, Martin Gruenberg, acting chairman of the FDIC, and Michael Hsu, acting controller of the OCC. “Banks’ relationship with crypto companies raises questions about the safety and soundness of our banking system and highlights the potential vulnerabilities that crypto companies have.” can try to exploit to gain more access.”
The letter refers to a report from The New York Times revealing that the sister company of former FTX CEO Sam Bankman-Fried Alameda Research has invested $11.5 million in Moonstone-based Bank in Washington state. According to the report, the amount was more than double the value of the bank at the time.
The head of Moonstone’s parent company, FBH Corp, is also the president of Bahamas-based Deltec Bank, which provides banking services to trading partner FTX and stablecoin issuer Tether, according to the letter.
Silvergate Capital Corp., Provident Bancorp Inc., Metropolitan Commercial Bank, Signature Bank, Bancorp Inc. Client. among a number of well-known banks experiencing heightened volatility following the FTX crash. Cryptocurrency deposits make up 90% of Silvergate’s total deposits. The letter states that the bank’s average quarterly deposits fell to $9.8 billion from a total deposit of $11.9 billion.
Cryptocurrency loans comprise more than half the equity of Provident Bank, which is potentially losing up to $27.5 million, the senators wrote.
The senators wrote: “Banks’ relationship with crypto companies raises questions about the safety and soundness of our banking system and highlights the potential vulnerabilities that could be found in our banking system. Cryptocurrency companies can try to mine to get more access to the banks.”
Warren and Smith acknowledge that the banking system has remained relatively calm following the FTX failure, but the company’s entanglement with small banks has exposed potential vulnerabilities that crypto companies can used to gain further access to traditional financial institutions.
FTX’s investment in Moonstone could be construed as a way to bypass a banking license in the US, Cointelegraph reported Nov. article quoted in the letter.
To better understand the banking industry’s exposure to cryptocurrencies, the senators asked to answer a series of questions, covering all of the business relationships between FTX, Alameda, and Moonstone, before the date. December 21.