FTX decline stirs up crypto world, lender BlockFi freezes customer withdrawals
The top US banking regulator at the Federal Reserve is urging Congress to pass legislation that would impose regulation on cryptocurrencies in the wake of the rapid collapse last week of FTX, a major crypto exchange.
Michael Barr, the Fed's vice chair for supervision, said in prepared testimony released Monday that "recent events in cryptocurrencies ... have highlighted the risks to investors and consumers associated with new and novel asset classes and activities when used against strong guardrails." with not."
Barr, who took office in July, is scheduled to testify before Congress on Tuesday for the first time as vice chair. He did not specifically mention FTX in his written remarks.
Yet his appearance comes after FTX, the third largest cryptocurrency exchange, formerly led by Sam Bankman-Fried, filed for bankruptcy on Friday. The fall of FTX has sent shockwaves throughout the crypto world, with lender BlockFi freezing customer withdrawals.
“Some financial innovations offer opportunities, but as we have seen recently, many innovations also carry risks,” Barr said. These include runs on deposits, collapse of asset values, misappropriation of customer funds, fraud, theft, manipulation and money laundering, he said.
"These risks, if not well controlled, can harm retail investors and cut against the goals of a safe and fair financial system," Barr said.
Barr said that the collapse of FTX occurred outside the banking system, which was the focus of his monitoring.
“But recent events remind us of the potential for systemic risk if the interconnections between the crypto system and the traditional financial system that exist today develop,” he said.
With respect to the banking system as a whole, most large banks have healthy levels of cash reserves, Barr said, even beyond the need for regulation.
But as the economy slows and the Fed raises interest rates faster, banks could come under more stress, he said.
"The economic outlook has weakened," Brar said, adding that uncertainty is rising.
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