FDIC 'looking closely' at Farmington State Bank in FTX fiasco

WASHINGTON — The Federal Deposit Insurance Corp. and the Federal Reserve are "looking closely" at Farmington State Bank, a small bank connected to the failed crypto exchange FTX, according to acting FDIC Chairman Martin Gruenberg. 

FTX's bankruptcy documents have revealed that Alameda Research, a hedge fund affiliated with the exchange, invested $11.5 million in the tiny Farmington State Bank, which now does business as Moonstone Bank in Washington State. That's a significant sum, particularly for this bank, which had about $21.7 million of assets as of the second quarter and has only about $10 million of deposits for most of the past decade. 

That revelation has spurred questions about FTX's reach within the banking system — and Sam Bankman-Fried's plans for it in the future — previously thought to be insulated from crypto turmoil. Bank regulators, including Gruenberg, have told Congress that their caution toward the crypto market has helped keep the traditional financial sector safe as crypto markets whipsaw. 

Ting Shen/Bloomberg

Gruenberg, in a press conference issued after the release of the agency's Quarterly Banking Profile, said that the FDIC and the Fed are scrutinizing the Farmington situation. He's also considering other ways FTX might have ties to the banking sector. 

"There's a lot of review as well that's going on with FTX," Gruenberg said. "We're learning more about the operations of that company and whether there might be any additional connections to the banking system. We're not aware of them now, but there's a careful review ongoing. We'll see what it might reveal."

FTX received some customer deposits via bank accounts held by Alameda

It's unclear to what extent regulators were involved in Alameda's investment into Farmington State Bank.  Farmington was acquired by a holding company led by Jean Chalopin, the owner of Deltec Bank, whose best- known client is the stablecoin issuer Tether, in 2020. After that, it applied and was approved by the Federal Reserve Bank of San Francisco in 2021. Then Alameda acquired a stake of a little less than 10% stake in the bank — just below the threshold for regulatory approval.   

In a press release, the bank said it has "remained in close communication with our regulators" throughout its business evolution and has "built robust processes, programs, and controls to ensure all our activities comply with all applicable laws and regulations." It says that Alameda has only a noncontrolling stake and that FTX's unwinding has "unfairly" affected its reputation.