Senator Elizabeth Warren, chair of the Senate Banking Committee’s Subcommittee on Economic Policy, said in an interview with the New York Times that cryptocurrencies are “the new shadow banks” shadow banks.
The statement was backed by a current investigation by regulators in several states into BlockFi, a crypto-lending platform. Regulators raised concerns regarding the firm’s BIA accounts, in which they saw unregistered securities.
Warren warned that crypto startups like BlockFi could evolve into services that provide banking services.
“Cryptocurrencies are the new shadow banks. They enable products offered by lending institutions, but without user protection and/or the financial stability on which the traditional financial system rests. This is like weaving gold from straw,” she said.
Warren proposed banning US banks from holding the reserves of stablecoin issuers. They gained this ability after the decision by the Office of the Comptroller of the Currency within the U.S. Treasury Department. The senator argues that this could put an end to the growing market.
Earlier in July, Warren urged US Treasury Secretary Janet Yellen to lead the development of a strategy to reduce the growing risks that cryptocurrencies pose to the financial system.
Earlier, the senator described cryptocurrencies as a “lousy investment” and said they facilitate illicit activity.
In August, in response to Warren’s inquiry, SEC Chairman Gary Gensler noted that the agency needs additional authority to regulate cryptocurrencies.
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