‘The nightmare isn’t over yet’: Senate Banking reckons with FTX fallout

After a series of high-profile congressional hearings in December after the collapse of FTX, the Senate Banking Committee held a largely muted affair on Tuesday, inviting a panel of expert witnesses versed in financial regulation.

With lawmakers still working to understand the fallout of FTX’s bankruptcy and U.S. agencies cracking down on the crypto industry, senators probed the assembled professors about the feasibility of legislation, eager to change perceptions that Congress has taken a backseat when it comes to crypto regulation.

“The nightmare isn’t over yet,” chair Sherrod Brown (D-Ohio) said in his opening remarks. “Recent crypto meltdowns have made clear that we need a comprehensive framework to regulate crypto products to protect consumers and our financial system.” 

‘Not let the crisis go to waste’

The Senate Banking Committee invited three professors, with each taking a different stance on crypto. Representing the anti-crypto side was Lee Reiners, a former Federal Reserve official and now the policy director of the Duke Financial Economics Center. He repeatedly warned of the risks that unregulated crypto poses to the traditional financial system.  

“Crypto scarcely resembles the peer-to-peer version of electronic cash first envisioned by Satoshi,” he said, referring to Bitcoin’s creator.

Georgetown Law professor Linda Jeng took a more pro-crypto stance, touting the potential of the technology and the risks of forcing the industry offshore. Jeng also serves as the chief regulatory officer and general counsel for the Crypto Council for Innovation, a trade association, although she said she was appearing in her capacity as an academic.

The final witness was Yesha Yadav, a Vanderbilt Law professor who took the most neutral stance, arguing for a self-regulatory structure for exchanges and calling for regulation from lawmakers.  

“We should not let the crisis go to waste,” she said.

The hearing mostly focused on wonky discussions related to specific policy areas of crypto legislation: stablecoins, custody management, conflict of interest, and anti-money laundering measures.  

It also served as a debut for freshmen senators’ stance on crypto. The industry seems to have found two new allies in J.D. Vance (R-Ohio)—who said he owns cryptocurrency—and Katie Britt (R-Ala.). 

Britt cited that 44% of crypto investors are not white and 41% are women, touting it as a possible path to financial inclusion.

“If we put in proper guidelines,” she asked, “are there opportunities for more people to achieve the American dream through digital assets?”

Sen. Elizabeth Warren (D-Mass.) announced that she would re-introduce her money laundering-focused crypto bill, which she first described in December’s hearing and which received industry pushback.

After action from regulators including the Federal Reserve and the Office of the Comptroller of the currency, banking policy also took center stage, with Reiners arguing that agencies should ensure banks don’t engage in risky behavior like holding crypto on balance sheets.  

Sen. Bill Hagerty (R-Tenn.) later pushed back, likening the coordinated behavior of regulators to “Operation Chokepoint,” an Obama-era policy that sought to cut off banking services to what regulators deemed to be questionable ventures.

Not in attendance was Gary Gensler, chair of the U.S. Securities and Exchange Commission, who has taken on a boogeyman-esque role for the crypto industry. Sen. Tim Scott (R-S.C.), who took over in January as ranking member following Pat Toomey’s retirement, said he hopes Gensler will testify sooner rather than later.  

“If Chairman Gensler is going to take enforcement action, Congress needs to hear from him,” Scott said.

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