Rep. Patrick McHenry, a Republican from North Carolina and a senior member of the House Financial Services Committee, speaks at a hearing in Washington, DC.
Andrew Harrer | Bloomberg | Getty Images
Calling the collapse of cryptocurrency exchange FTX a “garbage bin fire,” House lawmakers on Wednesday urged U.S. banking regulators to step up oversight of the industry as they investigate how Sam Bankman-Freed’s $32 billion company collapsed in a matter of days.
“This is not embellishment. The collapse was a garbage can fire. Users were left to fend for themselves. The ecosystem is in limbo, ”said the US financial system at a security hearing.
McHenry, who is likely to become the new committee chairman if the Republicans seize control of the House of Representatives as expected, announced bipartisan hearings on the collapse of FTX along with current committee chairman Maxine Waters, D-California, earlier Wednesday.
After a liquidity deal fell through last week, FTX filed for Chapter 11 bankruptcy protection on Friday along with 130 affiliates, including Alameda Research and FTX.us, the company’s subsidiary in USA. Bankman-Fried has since stepped down as CEO of the company he founded, the collapse of which set off a cascading chain of events across the industry.
A spokesman for Senator Sherrod Brown, Ohio, chairman of the Senate Banking Committee, said the commission also plans to hold its own hearing.
In addition, the Securities and Exchange Commission, the Department of Justice, and the Commodity Futures Trading Commission are launching their own investigations into the FTX bankruptcy and Bankman-Fried “wrongdoing.”
Treasury Secretary Janet Yellen also called for “better oversight of the cryptocurrency markets” in comments posted on Wednesday. She said the impact of the FTX bankruptcy on the financial system as a whole was limited. However, a recent report from the Financial Stability Oversight Board, which chairs the Treasury, warned that any further mixing of the traditional financial system and crypto markets “could raise greater financial stability concerns.”
Cryptocurrency lender BlockFi Inc. is considering filing for bankruptcy, telling investors it is “significantly at risk” of FTX failing. And earlier Wednesday, cryptocurrency lender Genesis Global Trading told clients in a series of tweets that it was suspending loans and customer buyouts as it looked for new sources of liquidity. “We have hired the best consultants in the industry to explore all possible options,” the company said.
“Given the failure of FTX, it’s more important than ever that Congress update our laws,” Waters told Michael J. Barr, vice chairman of the Federal Reserve Board of Supervisors, who testified before the committee. “And it’s time for regulators to update the rulebook to strengthen consumer and investor protection, as well as safeguards for our financial system and the risk of the digital access ecosystem.”
Barr said several banks are involved in or trading in crypto assets, but the Federal Reserve will soon publish “guidelines and clarifications” for financial institutions that engage in crypto-related activities. “Today, very few banks are involved in this activity, and therefore we want to make sure that we have these rules in place while the level of activity is relatively low,” Barr said.
He said he welcomed new laws that would require an additional layer of regulation and oversight for financial institutions offering stablecoin, a type of cryptocurrency whose value is pegged to a fixed instrument such as the US dollar.
“Because private money can pose huge risks to financial stability. If they are not properly regulated,” he said.
Brothers crypto billionaires
Rep. Brad Sherman, D-Calif., called the witnesses’ proposed regulation of cryptocurrency firms “vague rubbish.”
“The crypto billionaire brothers are now desperate for a patina of regulation as they continue to try to build a system that will allow them to earn more than trillions by facilitating tax evasion and sanction evasion,” said Sherman, Calif., chairman of the board. Subcommittee on Investor Protection, Entrepreneurship and Capital Markets. He said that crypto players want the “appearance of regulation” by undermining the SEC.
Rep. John Rose, D-Tn, a member of the Consumer Protection Commission, also said SEC Chairman Gary Gensler needed to answer a few questions about “what role he played and what he knew ahead of the crash.” democratic system.” Cryptocurrency exchange FTX by mega-donor Sam Bankman-Fried.
The committee plans to call FTX founder Bankman-Fried, as well as other executives from FTX, Alameda Research, Binance and others, to testify in December at a hearing over the FTX failure.
“I’m just concerned about crypto and where we’re going, and you know, we’re making sure everything is right.” said Rep. Gregory Meeks, DN.Y.
Martin J. Grunberg, Acting Chairman of the Federal Deposit Insurance Corporation; Todd M. Harper, Chairman, National Credit Union Administration; and Michael J. Hsu, Acting Comptroller of the Currency, also testified.
CNBC Mary Katherine Wellons as well as Mackenzie Cigalos contributed to this report.