US lawmakers question federal regulators on banks’ ties to crypto firms

“FTX’s collapse shows that crypto may be more integrated into the banking system than regulators are aware,” said Senators Elizabeth Warren and Tina Smith.

Two members of the United States Senate have called on the heads of federal financial regulators to address “ties between the banking industry and cryptocurrency firms” in the wake of FTX’s collapse.

In letters dated Dec. 7 to Federal Reserve chair Jerome Powell, acting Comptroller of the Currency Michael Hsu, and Federal Deposit Insurance Corporation acting chair Martin Gruenberg, Senators Elizabeth Warren and Tina Smith — both on the Senate Banking Committee — acknowledged that the crypto industry was not so “deeply integrated” with traditional financial institutions to severely impact markets after FTX’s bankruptcy filing. However, the two lawmakers pointed to reports suggesting ties between FTX and the Washington-based Moonstone Bank as well as stablecoin issuer Tether and the Bahamas-based Deltec Bank with seemingly no oversight from federal regulators.

“While the banking system has so far been relatively unscathed by the latest crypto crash, FTX’s collapse shows that crypto may be more integrated into the banking system than regulators are aware,” said Warren and Smith.

The senators called on Powell, Hsu, and Gruenberg to provide information on whether the regulators planned to review crypto firms’ connections to banks, as well as a list of banks regulated by the agencies currently engaged in crypto-related activities. In addition, Warren and Smith questioned the heads as to whether FTX may have used customer funds to invest more than $11 million in Moonstone, setting a Dec. 21 deadline for answers.

Warren has sent several letters related to investigations following FTX’s bankruptcy filing on Nov. 11. The Massachusetts senator has joined with other members of Congress to demand answers from former FTX CEO Sam Bankman-Fried, ask Silvergate Bank to provide details on its relationship with FTX entities following allegations about its business practices, and request the Department of Justice hold executives at the firm accountable “to the fullest extent of the law.”

Related: FTX stake in US bank raises concerns about banking loopholes

The Senate Banking Committee has scheduled a Dec. 14 hearing on “why the FTX bubble burst” with chair Sherrod Brown threatening to issue a subpoena for Bankman-Fried should he not testify voluntarily. The hearing was the third announced by various committees with the House of Representatives and Senate, with the House Financial Services Committee setting a Dec. 13 date for a similar investigative hearing on FTX.