Senate Crypto Bill Risks Repeat Of 2008 Financial Crisis, Largest US Labor Union Warns
America’s largest labor union has urged the Senate Banking Committee to reject a draft crypto bill, warning it lacks safeguards and risks a repeat of the 2008 financial crisis.
In a letter sent to the committee, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), said the Responsible Financial Innovation Act (RFIA) should ensure a stable financial system instead of creating ”a crypto casino for billionaires to make more profits.”
The letter drew parallels with the risks that caused the near-collapse of financial market in the 2008 crisis.
”Banks engaging in crypto-based hedge fund trading activity, which would be allowed under this regime, could be even riskier than some of the dangerous financial activities conducted before the 2008 financial crisis,” it said. ”This legislation provides the perfect environment for the next financial crisis to germinate.”
The bill, which was originally introduced by Senators Cynthia Lummis and Kirsten Gillibrand in 2022, was revised earlier this year.
The Senate Banking Committee is developing the bill as an alternative to the CLARITY ACT, which is a market structure bill that was passed by the House in July.
RFIA Bill Would Allow Crypto To Inject Itself Deeper Into The Financial System
The AFL-CIO said that it supports efforts to update regulatory regimes that can better protect workers. But it warned that there is a lack of sufficient oversight or meaningful guardrails to mitigate the risks that the draft bill presents.
“As drafted, this bill will enable the crypto industry to operate in wider and deeper ways in our financial system without sufficient oversight or meaningful safeguards,” the union wrote.
“Rather than insulating workers from the instability of crypto assets values, the Responsible Financial Innovation Act would increase workers’ exposure by greenlighting retirement plans like 401(k)s and pensions to hold this risky asset,” it added. “Poorly regulated crypto assets are dangerous to pensions.”
The AFL-CIO warned that the bill could expose banks to the “heightened risk of losses and failures” because it will give them the ability to trade crypto directly.
Firms Will Be Able To Create “Shadow Stocks”
According to the federation, the bill could also lead to the creation of a “shadow” economy, where stocks tokenized on the blockchain are “notionally-tied” to traditional public stocks but trade independently.
This, it argued, is not only risky for holders of the “shadow stocks,” but also for investors “who did not opt into this new unregulated market.”
“We are deeply concerned about the impact this potential shadow stock trading would have on the stability of the traditional financial markets and institutions,” the federation wrote.
The value of tokenized stocks currently stands at just $1.32 billion.
Tokenized stock market overview (Source: RWA.xyz)
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