Fed’s Banking Regulator Before Congress After FTX Blast: Crypto Industry Needs ‘Strong Defenders’
The top US banking regulator at the Federal Reserve is urging Congress to pass legislation imposing regulation on cryptocurrencies after the event. collapsed rapidly last week of FTX, a leading cryptocurrency exchange.
Michael Barr, the Fed’s vice president of oversight, said in preparatory testimony released Monday that “recent events in crypto… have highlighted the risks to investors and consumers involved in new and novel activities and asset classes when not accompanied by strong protections.”
Barr, who took office in July, is expected to testify before Congress for the first time as vice president. He did not specifically mention FTX in his written comment.
However, his arrival comes after FTX, the third largest cryptocurrency exchange, formerly led by Sam Bankman-Fried, filed for bankruptcy on Friday. The fall of FTX has spread throughout the crypto world, with lender BlockFi halting customer withdrawals.
“Some financial innovations present opportunities, but as we’ve seen recently, many also carry risks,” Barr said. “These include withdrawals of deposits, devaluation of assets, misuse of client funds, fraud, theft, manipulation and money laundering,” he said.
“These risks, if not well managed, can harm retail investors and go against the goals of a safe and fair financial system,” Barr said.
Barr noted that the collapse of FTX occurred outside of the banking system, a focus of his oversight.
“But recent events remind us of the potential for systemic risk if linkages develop between the cryptocurrency system that exists today and the traditional financial system,” he said.
In terms of the banking system as a whole, most large banks have healthy levels of cash reserves, Barr said, far beyond what is required by regulation.
But with the economy slowing like The Fed quickly raised interest rates, banks could experience more stress, he said.
“The economic outlook has weakened,” said Barr, adding to the uncertainty. “A weaker economy could put a strain on households and businesses, and therefore on the banking system as a whole.”
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