Yesterday Michael Hsu, Acting Comptroller of the Currency at the OCC, warned that cryptocurrencies and decentralized finance (DeFi) could pose risks for the broader economy, comparing them to the 2008 financial crisis. Ironically, his talk came the same day as several incumbent associations, including derivatives bodies ISDA and FIA, called for a rethink of the BIS planned treatment of crypto-assets by regulated financial institutions.
In his previous role at the SEC from 2004, Hsu had a front row seat to the evolution of derivatives, securitization and trading on Wall Street. He described it as witnessing a “fool’s gold rush from up close”. He oversaw five major investment banks: Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley. The collapse of one of them, Lehman, was the climax of the crisis.
“We saw innovations that brought genuine improvements to clients and risk managers; but we also saw innovations that would imperil the firms that promoted them and amplify the 2008 crisis,” said Hsu. “I see similarities with emerging risks in the crypto and DeFi space today.”
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