Al Drago/Photographer: Al Drago/Bloomberg
WASHINGTON โ Securities and Exchange Commission Chairman Gary Gensler has united cryptocurrencies and the recent banking crisis while asking Congress for more resources to police the crypto market.
"Silvergate and Firm [banks] they were involved in the cryptocurrency business; I mean, some would say they were backed by cryptocurrency," Gensler testified at a House Financial Services Committee hearing on Tuesday.
It is widely believed that the loss of deposits linked to cryptocurrency clients contributed to Silvergate's decision to shut down and Signature's failure. Federal regulators took unusual steps to try to prevent a loss of public confidence in the banking system after the collapse of those two banks and Silicon Valley Bank last month.
Gensler emphasized that the crisis showed that the regulated banking sector and the less-regulated crypto market have mutual exposures that need to be addressed.
"Silicon Valley Bank, actually, when it failed, it saw the country's second largest stablecoin in the world, had $3 billion dollars tied up there, untied, so it's interesting how all of this was also part of this narrative. cryptographic".
Stablecoin company Circle has confirmed that it had $3.3 billion of its $40 billion dollar coin reserves at Silicon Valley Bank, which went bankrupt on March 10.
While the SEC has the authority it needs to police the crypto market, Gensler says, the agency "could use more resources."
"The dedicated staff of this agency have done a remarkable job with limited resources," Gensler said in his prepared remarks. "In the face of significant growth in registrants, greater involvement of individual investors in our markets, and increased complexity, the SEC's staff actually shrunk from 2016 to last year. With the help of Congress, our staff this This year is now about 3% higher than it was in 2016. I support the president's request for fiscal year 2024 of $2.436 billion, to put us on a better path for the future."
In its budget request, the SEC requested funding for 5,475 new positions, some of which would increase the agency's oversight over crypto assets, including market surveillance for fraudulent and non-compliance activity.
โI think this is a field that, by and large, is based on non-compliance, and that's their business model,โ Gensler said at the hearing. "They have chosen not to comply and not provide investors with confidence and protection, and that undermines the $100 trillion capital markets."
Gensler's appearance was his first before the committee since Republicans took control of the House in January. They had little say in Gensler's request for more resources.
But Rep. Patrick McHenry, RN.C., chair of the panel, has said he intends to scrutinize the SEC and Gensler's leadership of the agency as part of an aggressive oversight agenda.
โAs you can see, we have a new administration and a new Congress,โ McHenry said. "So please make yourself comfortable."
McHenry suggested that he would use the committee's subpoena power or other methods to obtain information that Republicans say the SEC has withheld from Congress.
"If you continue to frustrate this institution by ignoring our requests and providing incomplete responses, we will be left with no choice but to pursue all avenues to obtain the information or documents we need," he said.
Republicans criticized what they called uncertainty about whether crypto assets should be classified as a security or a commodity, as well as the agency's proposed rulemaking on weather risk disclosures. The plan would include what is called a Scope 3 requirement, which could present a challenge for banks if they are required to report emissions that result from business-related assets and activities that are not owned or controlled by companies. For banks, it would likely mean requiring the collection of weather data from all companies they lend to or invest in.
Regarding the failed Silicon Valley and Signature banks, Gensler said the SEC has "initiated discussions." with the other five agencies responsible for finalizing an unfinished part of the Dodd-Frank Act that would give the Federal Deposit Insurance Corporation the ability to recover some compensation from executives of failed banks.
"I'm committed to doing this," Gensler said.
Rep. Andy Barr, R-Ky., chairman of the financial institutions subcommittee, questioned Gensler in an SEC staff newsletter which he said prevents banks from acting as custodians of crypto assets. Gensler defended the bulletin.
"I'm actually pretty proud of the staff that put out that staff accounting bulletin, because they said that public companies, not just banks, needed to put their customers' cryptocurrency on their balance sheet, because what we found in bankruptcy court , Celsius bankrupt and others, in bankruptcy investors just queue up," Gensler said.
Asked by Barr if bank regulators were consulted beforehand, Gensler said the agency discussed the matter with them "later."
"There was significant dialogue beforehand with the accounting profession and the big four [accounting firms] and others, because that issue kept coming up, but the banking regulators have been consulted about it later,โ he said.
