Michael Bennet, a United States senator representing the state of Colorado, recently drew attention to banks associated with crypto firms during a hearing of the Senate Finance Committee.
The senator raised the recent closure of the crypto-friendly Signature Bank with lawmakers and Treasury Secretary Janet Yellen in a discussion of U.S. President Joe Biden’s FY 2024 budget.
Bennet compared the relationship of banks and crypto companies to that of institutions and marijuana dispensaries – a legal service in many U.S. states that is “frozen out of the financial system”.
“Signature Bank failed and almost a fifth of its deposits came from crypto,” said Bennet. “They’re not allowed to do anything with marijuana, but apparently they can lay 20% of this on crypto – a notoriously unstable thing that nobody here even understands and where the value of the assets can soar and collapse.”
Bennet went on to suggest that crypto was not “even as stable as the marijuana industry,” implying that it may have been a factor in the collapse of Signature Bank.
However, Signature board member and former U.S. Representative Barney Frank said there was no issue regarding Signature’s solvency at the time the New York Department of Financial Services took control of the bank on March 12.
The failure of Signature Bank, Silicon Valley Bank, and Silvergate Bank and their ties to crypto firms have been part of discussions among industry experts, regulators, and lawmakers addressing the potential impact on the U.S. financial system.
The senator’s comments highlight ongoing concerns among some policymakers about the relationship between traditional banking institutions and the crypto industry. Bennet’s comparison to the marijuana industry suggests that some lawmakers view crypto as a high-risk, unpredictable asset class that poses potential dangers to financial stability.
At the same time, some in the crypto industry have argued that traditional banking institutions are not yet fully equipped to handle the unique challenges posed by digital assets.
They point to issues such as regulatory compliance, transaction processing, and custody as areas where banks may struggle to effectively serve crypto firms.
