The Federal Reserve Board of the United States and the Washington State Department of Financial Institutions have announced an enforcement action against Farmington State Bank, a financial institution whose parent company received more than $11 million from Alameda Research.
In an Aug. 17 announcement, the Fed said the enforcement action was related to Farmington “improperly chang[ing] its business plan” in 2022 without proper notification and approval. The bank did not inform the Fed it intended “to pursue a strategy focused on digital banking services or digital assets”. Formerly named Moonstone, Farmington received roughly $11.5 from FTX’s sister firm Alameda through its holding company FBH Corporation in March 2022.
“The Board’s action ensures the bank’s operations will wind down in a manner that protects the bank’s depositors and the Deposit Insurance Fund,” said the Fed. “The action also prohibits Farmington and FBH from making dividends or capital distributions, dissipating cash assets, and engaging in certain activities without approval from its supervisors.”
— Federal Reserve (@federalreserve) August 17, 2023
Farmington announced in January that it planned to exit the crypto space in an effort to return to its “original mission” as a community bank. However, the Fed enforcement action suggested the bank had “engage[d] in activities related to digital assets” including facilitating the issuance of stablecoins for an unnamed third party “in exchange for receipt of 50 percent of mint and burn fees”.
The Fed reported Farmington, based in Washington, had planned to sell its loans and deposits to the Bank of Eastern Oregon. Neither the Fed enforcement action nor the move to leave the space explicitly mentioned crypto exchange FTX, which declared bankruptcy in November 2022.
The enforcement action represented the latest by federal regulators against banks with ties to crypto firms and investors in the wake of the FTX collapse. Silvergate Bank’s parent company announced in March it planned to “wind down operations” for the crypto bank. This action preceded Silicon Valley Bank collapsing amid a run on deposits, and the Federal Deposit Insurance Corporation shutting down the crypto-friendly Signature Bank.
U.S. lawmakers conducted several hearings in the wake of the bank failures, with some suggesting that ties to crypto firms had contributed to their collapse. Some policymakers including New York Department of Financial Services superintendent Adrienne Harris reportedly said it was “ludicrous” to blame digital assets for the collapse of Signature.