The former president of the SEC said they had urged closing the regulatory gap, adding that the FTX collapse is a clear example. Yellen commented that the exchange owes its 50 largest creditors over USD 3 billion while many customers lost billions of US dollars.
The US Treasury secretary, Janet Yellen, recently compared the FTX catastrophe to the collapse of Lehman Brothers in 2008. The government official explained that the situation is big enough to impact traders and people uninformed about the risks.
The value of the subprime mortgages contained in the stability sheet of Lehman plummeted with the stock market swing. That created a ripple effect in the global economy, which caused trillions of US dollars in assets to evaporate. When that happened, Lehman was the fourth-largest American financial institution, whose assets amounted to USD 650 billion.
Although the FTX issue is not as bad as the Lehman Brothers case, it is also worrisome. The former president of the SEC said they had urged closing the regulatory gap, adding that this experience with Sam Bankman-Fried is a clear example.
During the Terra-LUNA crisis in May, the Treasury Department and the Financial Stability Oversight Council suggested applying the current financial laws to cryptocurrencies. FSOC also wants the National Assembly to approve a new law to address potential vulnerabilities regarding arbitrage.
Yellen also reiterated that the lack of publicity for crypto assets in the banking sector is a good indicator. She said those financial institutions have been careful to set clearly-stated regulations.
Yellen Says the FTX Collapse Implies the Need for Crypto Regulation
The US Treasury Secretary said it is necessary to apply for proper crypto regulation after the collapse of FTX. In that context, she said she has been skeptical about the cryptocurrency industry.
While highlighting the importance of adequate customer protection, the Treasury secretary noted the relevance of financial innovations. She said the latter should include tools to help lower cross-border transaction costs and improve financial inclusion.
Yellen commented that bankrupt cryptocurrency exchange FTX owes its 50 largest creditors over USD 3 billion. Besides, she explained that around 1 million customers and other investors face the loss of billions of US dollars.
The official also revealed that the US government is discussing the regulations on cryptocurrencies with its allies. She pointed out that protecting customer assets and segregating them is a priority.
According to Yellen, the collapse of FTX has led her to reiterate the need for careful regulation of cryptocurrencies. She said that this event shows the weaknesses of the crypto industry, as many customers lost their deposits on the bankrupt exchange.
Cryptocurrencies have become increasingly relevant in the global economy, which regulators have not overlooked. The authorities have taken the FTX collapse as an excuse to tighten their control over the industry. However, some experts consider that this event does not imply that crypto assets are the problem but those mismanaging that company.
By Alexander Salazar