Banks Seek to Reassure After Crypto Turmoil

US banks were largely unaffected by the collapse of cryptocurrency trading platform FTX, according to the Office for the Comptroller of the Currency (OCC).

Speaking to the Senate Committee on Banking, Housing and Urban Affairs this week, acting comptroller Michael Hsu said its “careful and cautious” approach to crypto assets meant that the risk of contagion to the federal banking system from such events was mitigated.

In written evidence to the committee, Hsu highlighted a recent interpretive letter issued by the OCC that “establishes guardrails to clarify that the institutions we supervise should not engage in certain crypto activities unless they demonstrate that the activities can be performed in a safe, sound, and fair manner”.

“This approach has proven to be prudent following the Terra stablecoin collapse in May and more recently with the bankruptcy of FTX,” Hsu stated. “Despite contagion across cryptocurrencies and several crypto platforms, the federally regulated banking system has, for the most part, been largely unaffected.”

FTX, one of the biggest cryptocurrency exchanges, filed for bankruptcy last week, triggering significant falls in the price of Bitcoin, Ether, and other cryptocurrencies. The Securities Commission of The Bahamas, where FTX is headquartered, is investigating the circumstances of the collapse in collaboration with other regulators, it said this week.

FTX’s US arm was issued with a cease-and-desist letter by the Federal Deposit Insurance Corporation in August, along with four other crypto firms, over “false and misleading statements” that the corporation said suggested investors were federally insured.

New York-based Signature Bank issued a statement this week confirming that, while it had a “deposit relationship” with FTX, this only accounted for less than 0.1% of total deposits. It does not perform any other services for cryptocurrencies, the bank stated.

President and CEO Joseph DePaolo said: “Signature Bank is a well-diversified institution that employs appropriate risk management strategies that help us navigate the current challenging digital asset landscape. Our strong capital, solid earnings and overall diversification, continues to provide a source of strength for our depositor clients.”

Payment connectivity company Plaid has suspended FTX’s access to user data, meaning the platform cannot access its customers’ bank accounts to take payments.