Federal Reserve issues enforcement action against FTX-linked bank

A bank linked to FTX changed its business plan without letting supervisors know, the Federal Reserve said in an enforcement action. 

The central bank issued the action against Washington-based Farmington State Bank and its holding company, FBH Corporation, on Thursday, according to a statement. Farmington, which used to do business as Moonstone Bank and had direct ties to FTX’s trading arm Alameda. 

“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. 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,” the central bank said.

Farmington said it consented to the Federal Reserve's order in a statement on Thursday. 

"All bank regulatory approvals for the assumption of deposits and the purchase of assets by Bank of Eastern Oregon of Farmington State Bank have been received. The transaction is expected to close by August 31, 2023," the bank said. 

Congressional attention

Sens. Elizabeth Warren, D-Mass., and Tina Smith, D-Minn., wrote to the Federal Reserve last year asking for details on how Alameda was reportedly able to buy Moonstone Bank. 

"While the banking system has so far been relatively unscathed by the latest crypto crash, FTX's collapse shows that crypto may be more integrated into the banking system than regulators are aware,'' the letters said. 

The Federal Reserve, along with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. issued a warning to banks in January following the collapse of FTX, reminding them of their safety and soundness obligations and outlining risks in the crypto sector.