The US Federal Reserve and the Washington State Department of Financial Institutions have announced enforcement action against Farmington State Bank, 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's “improper changes to its 2022 business plan” without proper notification and approval. The bank did not inform the Fed of its intention to “pursue a strategy focused on digital banking services or digital assets." Farmington, formerly known as Moonstone, received approximately $11.5 million in March 2022 from FTX's sister company Alameda through its holding company, FBH Corporation.
"The board's action ensures that banking operations will be phased out in a manner that protects bank depositors and the deposit insurance fund," the Fed said. "The action also prohibits Farmington and FBH from issuing dividends or capital distributions and burning cash without regulation tory approval "assets and engage in certain activities." Farmington announced in January that it planned to exit the cryptocurrency space in order to return to its “original mission” as a community bank. However, the Fed's enforcement actions indicated that the bank “engaged in activities related to digital assets,” including facilitating the issuance of stablecoins by unnamed third parties “in exchange for 50 percent of minting and burning fees.”
Washington-based Farmington plans to sell its loans and deposits to Eastern Oregon Bank, the Fed reported. Neither the Fed's enforcement action nor its move to exit the space explicitly mentions cryptocurrency exchange FTX, which is declaring bankruptcy in November 2022. The enforcement action is the latest by federal regulators to target banks linked to cryptocurrency companies and investors following the collapse of FTX. Silvergate Bank's parent company announced in March that it plans to “wind down operations of the cryptocurrency bank.” The action comes ahead of the collapse of Silicon Valley Bank due to a deposit run and the closure of crypto-friendly signature banks by the FDIC.
US lawmakers have held multiple hearings following the bank's collapse, which some believe has links to cryptocurrency firms that contributed to the bank's collapse. Adrienne Harris, director of the New York Department of Financial Services, reportedly said that bl aming digital assets for Signature's debacle is " ridiculous."
