With Banking Regulators on the Sidelines, Congress Eyes Crypto Legislation after FTX Implosion

Source: American Banker

The stunning fall from grace of crypto firm FTX is prompting policymakers across Washington to consider how regulation of the broader cryptocurrency world could affect the financial system, including the safety and soundness of banks. 

Several lawmakers, including Rep. Maxine Waters (D-Calif.), chair of the House Financial Services Committee, and Sen. Sherrod Brown (D-Ohio), chair of the Senate Banking Committee, have joined Rep. Pat McHenry (R-N.C.), ranking member of the House panel and its likely future chair,  in calling for more scrutiny on crypto markets. 

The calls come after crypto exchange FTX lent billions of dollars worth of customer assets to fund risky bets by its affiliated trading firm, Alameda Research, according to The Wall Street Journal. That reportedly exacerbated a liquidity crisis at the company, which continues to unravel after rival Binance reneged on a tentative offer to bail it out. 

Waters, who's been working on a stablecoin bill with McHenry, called FTX's spiral the "latest example in a string of incidents involving the collapse of cryptocurrency companies and the impacts these failures have on consumers and investors." She echoed McHenry's previous statements that the event increases the urgency for lawmakers to pass legislation. 

"I've been working around the clock with Ranking Member Patrick McHenry to craft bipartisan legislation that establishes a federal framework for stablecoins in order to begin building the safeguards needed to protect customers' assets and insulate our financial markets from contagion," she said. "This week's news further highlights the urgent need for legislation." 

Brown called for U.S. regulators to investigate FTX's demise, and pointed to potential implications for the banking system, although he notably didn't join the chorus of legislators calling for Congress to come up with some kind of regulatory framework.